Chart: BIC not BRIC

April 21, 2009 2:11 pm

Below is a chart of the BIC index that we have created in order to track its progress. It is an equal weight of Brazil, India and China (Hong Kong) markets. We have been investing using the iShares ETFs for portfolios as these represent a good way to gain exposure to these particular emerging markets and their corresponding oil and commodities.

Traditionally, you hear of the BRIC which includes Russia of course. But, it is difficult to invest in a country that turns off and on its stock market like water (or vodka in this case).

FXI‎iShares FTSE/Xinhua China 25 Index (ETF) (NYSE)
EWZ‎iShares MSCI Brazil Index (ETF) (NYSE)
EPI‎WisdomTree India Earnings Fund (ETF) (NYSE)

We have been investors since early March as we believe that there may be more room to grow as these economies are on the fast track to recovery as they are much more able to be flexible and nimble to react to changing market conditions. In addition, the sheer number of citizens makes for one heck of consumption machine. At the same time we realize that there will be massive trading opportunities that will form moving forward. In fact, while many feel that these countries are now well insulated from market problems as they have seen their lows, we are not quite sure that is an accurate assumption.

bic

On the other hand (as always), it is reasonable to expect that there will be significant resistance coming as the world demand needs to keep these three in business. Apparently, China can go at it alone as their population consumes native goods along with added stimulus from government spending stockpiled reserves. India and Brazil are more fragile however.

Brazil in particular needs to figure out how to profit in a world of sub-$50 oil. The Petrobras deep water oil find will be enough to create enormous wealth for the entire population, but there are significant challenges to actually bringing that oil to the surface. The cost of the process requires that oil stays north of an estimated $50 or so in order to ensure that it is worthwhile. It is that simple.

India is the weakest link of the three. Service is a significant export and while the population can consume, the country is very dependent on external demand for its growth. Some economists see it as the next China/Asia play but the political environment and a country that remains very poor will have its challenges without any tangible commodity exports.

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