Ten years ago, it was all about the BRIC countries – Brazil, Russia, India, and China. These countries are rich in resources, and it was thought that capitalizing on those resources would elevate all four countries to the next level.
But that promise is ringing hollow today.
You see, while the BRIC economies were growing, their respective stock markets weren’t mirroring that growth in a predictable fashion. So it was difficult for investors to participate.
Brazil and Russia have suffered the most, along with the rest of the energy market. Since those markets failed to meet expectations, any profits that were made were fleeting.
That leaves two countries, China and India, as the top bets for future profits. The good news is, both countries are growing, and they have the potential to deliver profits in the years ahead.
Move Over, B & R
Today, the situation for Brazil and Russia is far worse than even five years ago.
Brazil is facing an economic recession after years of overspending in the public sector and vast political corruption.
Petrobras (PBR), an energy producer and the country’s cash cow, recently became tabloid fodder as billions of dollars of bribes and kickbacks recently came to light. Allegations of the widespread corruption are even reaching the country’s president.
Plunging oil prices are also rubbing salt in Petrobras’ wounds, and slack global demand for commodities is limiting the resource-rich nation’s profits.
To top it all off, the value of the country’s currency, the Brazilian real, is plummeting and exacerbating the issue. Higher inflation is forcing the Central Bank to keep interest rates high, negating any hopes of growth.
Brazil is truly toast, for now.
Russia would be in even worse shape were it not for the huge foreign reserves it built up during the days of $100-per-barrel oil.
But even those reserves are being decimated daily as the country tries to prop up its currency, which has been cut in half in just the past year – a result of sanctions and plunging oil prices.
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Now, India and China’s markets are also trading unpredictably. But they’ve also managed to foster growth in their economies.
I & C Are the New Stars
India and China share several common characteristics that have kept their economies from collapsing.
First, they both have no shortage of educated human capital that can undercut global labor prices.
Second, they both boast insular economies with very high barriers against foreign entities. This is allowing local businesses to continue to enjoy the lion’s share of the gains.
For instance, Wal-Mart (WMT) has been trying to make inroads into India for years, with no success. In fact, major conglomerates are finding that it’s just easier to work with local proxies than to establish their own branded and operated businesses within each country.
Both countries also have their own currencies, the flexibility to print more or less money, and the power to control interest rates as they see fit. India just lowered its interest rates last week, as a result of tamer-than-expected inflation. Chinese inflation is also running at manageable rates.
India and China are both benefiting from plunging commodity prices. However, India has the potential to bring investors greater profits in the coming months as a result of both a perfect storm of political and economic convergence.
Why India Is No. 1
You see, the most recent election in India saw a power shift from the old guard, The Congress Party, to leadership that’s more focused on economic growth and has a track record to prove it.
The new Prime Minister, Narendra Modi, used to be in charge of India’s vast Gujarat province beginning in 2001. Since that time, Gujarat’s growth rate averaged more than 10% per year, almost 50% higher than the growth rate for the rest of the country.
Much of that success was the result of business-friendly policies like less bureaucracy, tax incentives, free market policies, less state intervention – things that allowed businesses to flourish.
Modi’s aim is to achieve that same type of growth on a national level. If he succeeds, the country could outstrip the growth of all other large emerging markets, including China.
Both of these tailwinds could propel the economy to heights not seen in a decade!
In the next issue, I’ll explore these factors in detail and show you how to position yourself early to take advantage of this once-again emerging profit opportunity.
And the chase continues,