by Ben Kumar, Investment Manager, Seven Investment Management
Ideas are dangerous things. Acronyms are worse. Acronyms distil complex ideas into something easy to remember. If they get really popular, however, the acronym becomes the idea. Taser, radar and scuba are actually all acronyms1, but who really remembers that – other than quiz show contestants?
The financial services industry embraces acronyms like no one else. Many of them stay cooped up in their investment banking silos, never to see the light of day. That is unless something goes wrong – then everyone is an expert on an MBS and a CDO.
Occasionally, though, one of these phrases breaks free of finance and catches on in the wider world. And the example I want to talk about today is arguably the most successful of all – BRIC.
The term was coined in 2001 by Jim O’Neil of Goldman Sachs to describe the four emerging market economies that he viewed as having the most potential – Brazil, Russia, India and China. South Africa was added through an ‘S’ around ten years later. The phrase immediately went viral in the finance world, allowing research analysts and journalists to fill pages and pages with BRIC building analogies.
The wildfire spread further than that though. Just five years later, the four initial countries were holding side meetings at UN conventions together under its banner, and 2009 saw the first formal summit. By 2012, and now including South Africa, these nations were pledging US$75 billion to the IMF, and setting up the US$100 billion New Development Bank (which was even called the BRIC Development Bank to start with). Now, in 2017, the summits are annual events and the BRIC countries represent 3.6 billion people – nearly a quarter of the world economy. Seems like a pretty successful acronym!
Of course, finance loves a feedback loop. Once BRIC got big, a few things happened. Products were launched to allow people to access the trend. So, you could put your savings into a BRIC ETF by 2007. That next step gives an insight into the thought process that is so often present in our industry. It probably tends to go something like this:
“BRIC is selling like hot cakes”
“Interesting. That must mean all snappy acronyms used to describe Emerging Markets will do well. Let’s create some.”
This saw the MINT2 economies get some press, as did CIVETS3. VISTA4 was also proposed – in a lovely recursive twist, this was by the BRIC Economic Research Institute. None of these, it has to be said however, have caught on in quite the same way.
Following this, it all went a bit meta with the Beyond BRIC Index. The reasoning here seems to have been that if people like the BRIC economies, then others must not like BRICS, and so let’s create an index giving access to all of the countries in the Emerging Market world apart from the BRICs.
Whilst clearly being a popular success, has BRIC been a financial one? Stockmarkets after all – as with other investments – do go down as well as up so your capital is at risk. However, as ever with these things, it depends on your time scale. Over five years, the BRIC index of stocks is 7% ahead of the broader Emerging Markets Index. Over 10 years through, the BRIC index is 20% behind the broad Emerging Markets index. Yet, since inception in 2001, the two indices have performed almost exactly in line. So was it therefore actually worth all the pomp and ceremony?!
1 Tasar = Thomas A Swift’s Electric Rifle; radar = RAdio Detection And Ranging; and scuba = Self-Contained Underwater Breathing Apparatus.
2 Mexcio, Indonesia, Nigeria, Turkey
3 Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa (before it was added to BRICs)
4 Vietnam, Indonesia, South Africa, Turkey, Argentina
