BRIC By BRIC

In 2001, Goldman Sachs economist Jim O'Neill coined the acronym BRICs to represent the four major emerging market nations, Brazil, Russia, India and China, that he predicted would drive global growth and transform the international economic order. (The full report is here.) The idea soon took off, leading to an investment and business charge into the BRICs that catapulted O'Neill from head economist to chairman of GSAM. Two decades on, how have O'Neill's predictions fared?

From an economics perspective, it's been a mixed bag. China has soared to become the second biggest economy in the world. India has climbed, while Brazil and Russia have stagnated after a decade of strong growth, as shown below (GDPs in current USD; click to enlarge). In 2001, Brazil, Russia, India and China were 2.2%, 1.2%, 1.9% and 5.3% of global GDP, respectively. By 2020, Brazil and Russia were still around 2.4% and 2.5% of world GDP, respectively; India had risen to 4.3% of global GDP; but China...had shot up to a remarkable 24.3% of global GDP from $1.3 trillion to $14.7 trillion. Over the past two decades, the world's economy grew from $20.5 trillion to $60.5 trillion and China was responsible for nearly 40% of that increase!  

                                 Source: Bloomberg, World Bank

                                         Source: World Bank, Mantabye

                                            Source: Mantabye 

But what has been the result from investors' perspective? Were all the billions flowing into the BRICs, as a result of O'Neill's report, a good investment? Based on returns of the individual countries' MSCI indices...the answer is (a qualified) yes, as shown below. (MSCI ACWI represents MSCI's benchmark All Country World Index and MSCI EAFE represents Europe, Australia and Far East) 

                                            Source: MSCI family of indices, Mantabye. Returns range: Nov 2001-Oct 2021

Since the GS report was published in November 2001, the BRICs have all outperformed the U.S. and global equities. But all of the outperformance came in the first 10 years. Over the past decade, following the Global Finance Crisis, each of the BRICs substantially underperformed the U.S. and global equities. Brazil has especially struggled in the past 10 years, losing investors 4% per year. Even Chinese equities have generated only half the gains as U.S. equities. Perhaps that's an opportunity...now that U.S. equities are at elevated valuations, some of the BRICs may once again be attractive.