BRICS investment opportunities continue to captivate global investors due to their strong growth potential in emerging markets. Mark Mobius, Executive Director of Templeton Emerging Markets Group, provides an exclusive analysis for BRICS Business Magazine on the investment attractiveness and prospects of each BRICS nation. With decades of experience, Mobius highlights how these countries offer unique advantages in development, driven by emerging markets growth, Asia-Pacific innovation, and African investments.
Brazil’s Economic Landscape
Brazil remains a compelling destination for long-term BRICS investment opportunities, despite recent slowdowns in domestic growth and global economic instability. However, its competitiveness faces risks from declining stock values amid economic challenges that intensified since early 2012. In 2011, Brazil’s economic growth dropped to 2.7% from 7.5% in 2010, partly due to the eurozone crisis and a stronger real impacting industrial competitiveness.
Nevertheless, Brazilian policymakers are addressing these issues effectively. The central bank has lowered the key interest rate to stimulate the national economy, intervened in the currency market to weaken the real, and tightened capital inflow controls. The government has also implemented measures to support industrial exports. Upcoming events like the 2014 FIFA World Cup and 2016 Summer Olympics, along with plans to invest $65 billion in infrastructure, provide solid grounds for investor confidence in Brazil’s development.
Our research team still favors Brazil’s long-term investment potential. We particularly like the energy, financial, and commodities sectors, while rising incomes and improved living standards among the young workforce create opportunities in domestic consumption. If these trends persist, Brazil’s current slow growth could turn into a sharp rebound, enhancing emerging markets growth. [Link to related BRICS article on infrastructure projects].
Russia’s Evolution and Potential
Russia has significantly evolved over the past two decades, becoming a serious investment target with substantial potential, though more needs to be done to open markets and build investor trust. In the first quarter of 2012, Russia was the only BRICS country to show accelerated GDP growth compared to the previous quarter, rising to 4.9% from 4.8%. Russia boasts enviably low leverage levels, with external debt to GDP at 8.7% and domestic credit to GDP at 45.9% in 2011. It also holds $500 billion in foreign reserves and is the world’s largest producer of many commodities, including energy resources and precious metals.
Energy is crucial for Russia, accounting for about three-quarters of its exports. As the world’s top crude oil producer, it extracts around 10 million barrels daily (about 12% of global oil). Russia has the largest natural gas reserves and ranks second in coal. Thus, much of the Russian market revolves around energy companies. While President Putin has pledged to diversify the economy and reduce oil dependency, Russia’s future remains heavily influenced by oil prices, leading to stock market volatility. European uncertainties and potential global slowdowns caused oil prices to drop in spring and summer, but our team does not anticipate a sharp decline.
From an investment perspective, we seek opportunities in the energy sector, including exploration, production, refining, and marketing companies. We also focus on consumer goods and services, as well as freight transportation. Railroad container shipping is an area where we expect growth due to rising consumer demand, potential global macroeconomic improvements, and Europe-Asia transit development. For more on emerging markets growth, see IMF reports on global economies with insights into commodity trends.
India’s Challenges and Reforms
In India, investors are most concerned about the lack of reforms and corruption scandals involving misuse of public resources. Over the past year, fierce protests have spurred change, placing corruption at the top of senior officials’ agendas. Unlike many, I am nearly certain that India will eventually move past some of these high-profile scandals. The power of media, the Right to Information Act, and increasing use of information technology in public and private services should help reduce corruption in transactions. Of course, accumulated issues remain, but we hope the country will resolve them.
Despite current challenges, we expect at least 4-5% growth in 2012—a high rate compared to other economies. Positive business forecasts could also shift investor sentiment. I prefer to continue seeking long-term BRICS investment opportunities in India. If meaningful reforms occur, I see potential for growth reminiscent of China’s scenario 5-10 years ago. India’s vast natural resources, growing middle class, rising GDP, and consumer demand present opportunities for diligent investors. In specific sectors, we see potential in software. Explore OECD insights on Asia-Pacific innovation for deeper analysis on reforms.
China’s Sustained Growth
There is significant concern about China’s economic slowdown. Growth rates have indeed fallen from double digits in recent years to an expected 7-8% GDP growth this year, but this should not be viewed as a hard landing: China’s pace remains impressive.
We anticipate China’s economy to grow at 7-8% annually in the foreseeable future. Some fluctuations may occur, but we consider this level sustainable. Even with slower growth, the economy’s reliance on exports and investments is decreasing, which should please any investor.
Another reason for optimism is demographics. China’s workforce remains far more competitive than in developed countries. The government can implement reforms to boost productivity, such as cutting business taxes, privatizing more state enterprises, and liberalizing interest rates to aid small and medium enterprises.
We view the anxious market’s underdevelopment as a potential opportunity, with current cost-to-earnings ratios appearing attractive in China. Consumer goods and commodities are areas of particular interest, as the shift to a consumption-based economy should support these sectors, fostering Asia-Pacific innovation.
South Africa’s Unique Position
South Africa stands out from its African peers with a larger and more liquid securities market. Many South African companies provide access to northern markets that are hard to reach locally. Until now, investors have been drawn to mining stocks, but recent labor issues in this sector will affect debts and efficiency unless production agreements are advanced by industry or government. This sector remains vital and under constant monitoring. Today, the consumer sector and consumer-influencing companies are more appealing: retail banks, insurance firms, and telecommunications. Retail trade is of special interest, especially companies expanding northward across Africa. Investment challenges like liquidity and opacity are less severe in South Africa than in other African markets, highlighting African investments.
Conclusion: Long-Term Prospects
We believe BRICS markets maintain strong positions that make them attractive to investors. Here, we can count on robust economic growth, favorable demographics, rich natural resources, and high returns. Anxiety and uncertainty may continue to cause fears in the global economy, potentially affecting emerging markets including BRICS, but we firmly believe these markets will succeed long-term. The key will be balancing economic growth, inflation, and global competitiveness. Even if overall growth is slightly lower this year than before, most of these economies will outpace developed countries, solidifying BRICS investment opportunities.
