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The Hottest World Markets Today

Written By Brian Hicks

Posted October 2, 2007

Four years ago, a team of economists at Goldman Sachs hatched an acronym that would carry monumental connotations for emerging market investors. Here’s where we stand, four years down the road.

The Dow is at an all-time high, and so are the stock markets of the BRIC economies: Brazil’s BOVESPA index, Russia’s MICEX in Moscow, India’s SENSEX and China’s Shanghai composite all reflect gains in the hundreds of percentage points.

Goldman Sachs’s own BRIC fund (NASDAQ:GBRAX), is up 85% over the past year, after the investment bank dragged its feet and waited a full two years before profiting from its own leading letters. The Dow and its record-setting pace only logged a quarter of that progress, rising just over 20% in 52 weeks.

BRIC index vs Dow

Last week, one of the original BRIC report’s co-authors told India’s Economic Times that even the torrid pace projected four years ago is shy of reality.

"They are outdoing our projections," Roopa Purushothaman told members of the press in Mumbai, India’s financial center (formerly known as Bombay).

China could overtake Germany in the size of its economy by 2008, Purushothaman and her colleagues had said in their write-up, eliciting groans from many naysayers who thought the ostensibly Communist country would never pass Europe’s industrial dynamo.

A full year early, that prediction has come true.

But this isn’t crystal ball stuff. This is global economics with a heavy dose of geopolitics mixed in. "Even if two out of the four countries [Brazil, Russia, India and China] perform according to the projections, it will be considered as a huge success," the economist added.

Market psychology and the dollar factor in, with American investors not only looking to bonds but also to foreign markets on the upswing, as they pull their money out of a domestic market that is only in the eye of the sub-prime storm–not yet in the clear.

There is growing talk of "decoupling," which describes the greater capacity for Asia, Eastern Europe, and Latin America to bounce back if the world’s largest consumer base (the United States) falls off a credit cliff.

We tend to see exaggeration in these markets, in both the peaks and the valleys of index momentum. Check out this chart of Hong Kong’s Hang Seng index (in blue) vs. Shanghai (in red) and the Dow way down there at the bottom in green.

Hong Kong vs Shanghai and Dow

Now, some people may treat you like you were born yesterday, but I know you remember this August. The markets seemed like they would never recover from panicked selloffs in financials, and the harshest real-estate market appraisals started pouring in (again, they haven’t stopped . . . just check today’s news). Wall Street seemed awfully wobbly, but Hong Kong got clobbered.

Hong Kong is the preferred play in Greater China for most foreign investors. Even more sophisticated Chinese retail investors want a crack at Hong Kong, since Shanghai share prices are being driven astronomically high as over a hundred thousand trading accounts are opened every day.

Retail investors on the mainland aren’t allowed to buy H-shares, though, so Shanghai is propelled farther and faster, while Hong Kong’s Hang Seng index reflects more of what is actually happening in the rest of the world.

But as deep as the troughs seem, these waves crest higher and higher each time.

As I said, there is always more to the story. If you only buy BRIC, you miss out on the rest of the world–countries like Indonesia and Colombia and Ukraine that can benefit handsomely as regional BRIC powerhouses become pivot points for the countries around them.

Indonesia’s Jakarta exchange is nothing to scoff at, almost neck-and-neck with Hong Kong since the leaves turned last year:


Of course, Russia is keen to re-establish its sphere of influence that went bye-bye with the fall of the Soviet Union. Being Europe’s leading natural gas provider makes it a heck of a lot easier for capitalist Russia to attract friends. Who wants to be left out in the cold?

The London Stock Exchange is where you’ll find Gazprom, Rosneft (the national oil company), and many other Russian and former Soviet Union firms (like KazMunaiGaz, Kazakhstan’s state oil company). London is also home to a bevy of Russian tycoons who take advantage of a major loophole to avoid paying hundreds of millions of pounds in taxes.

Surely Moscow real estate would suffer if these former apparatchiks had to cough up as much of their income as the average Brit. No wonder Moscow real-estate prices are soaring past London’s these days.

The BRIC effect we are seeing is akin to dropping a stone in the water. We see some heavy waves but also ripples of prosperity that shouldn’t be ignored for the bigger splash.

There has never been a better time to get in on global markets. To learn more about my Orbus Investor service and come with me on my November trip to China (as well as South Korea and Japan), click below:



Sam Hopkins