The Fate of BRIC ETFs

By Kevin Grewal

2009 was a great year for Brazil, Russia, India and China, better known as the BRIC nations, as equities that track these regions of the world performed remarkably and their future remains bright.

For one reason, BRIC nations are where economic growth is expected to be.  According to the International Monetary Fund (IMF), all four of the BRIC nations are expected to show GDP growth in 2010, with China leading the way at 8.5%, followed by India at 6.5%, then Brazil at 2.5% and Russia at 1.6%.

China

China has numerous forces in its favor and thanks to its current macroeconomic policy which continues to add liquidity to its economy, it is expected to emerge from the global recession economically stronger than ever.  Chinese manufacturing is showing its strengths suggesting expansion all across the board and industrial companies have been posting record profits. 

A second positive factor supporting China is the strengthening of its exports.  As economies around the world continue to emerge from the global recession, Chinese exports are likely to increase.  Additionally, the passage and implementation of the world’s third largest free trade agreement between China and ASEAN’s 10 Southeast Asian nations will likely be beneficial to Chinese exports.  Lastly, private investment in the first half of the year is expected to increase as domestic demand increases and exports strengthen.

A good way to invest in China is through the iShares FTSE/Xinhua China 25 Index (FXI), which has rallied nearly 41% over the last year and closed at $44.03 on Tuesday.

India

Some factors that make India appealing include an increase in business confidence, strong equity markets, an abundance of young intelligent workers and a high savings rate.  Additionally, rising incomes amongst the extremely poor will likely increase the demand for basic goods and services.  Lastly, manufacturing continues to show signs of expansion.

A way to invest in India is through the iPath MSCI India Index ETN (INP), which is up about 98% over the last year and closed at $66.75 on Tuesday.

Brazil

Like China and India, Brazil has many forces in its favor.  Perhaps the single most beneficial thing Brazil has going for it is its supply of vast resources that are in global demand.  As economies continue to prosper and governments seek to improve lifestyles, agricultural-based and energy-based commodities will continue to be in demand; both which are plentiful in Brazil.

A good way to gain exposure to Brazil is through the iShares MSCI Brazil Index (EWZ).  EWZ is up 118% over the last year and closed at $77.28 on Tuesday.

Russia

Russia has appeal due to its commodity-driven economy, which will likely be the primary beneficiary behind a global economic recovery.  It is expected that demand for crude oil and gasoline will increase in the coming year as will demand for metals like steel, gold, copper and nickel. 

The Market Vectors Russia (RSX) is a good way to gain exposure to Russia.  RSX is up 130% over the last year and closed at $33.26 on Tuesday.

For one-stop exposure to all of the BRIC nations the iShares MSCI BRIC Index (BKF) is a good place to look.  BKF is up nearly 81% over the last year and closed at $47.80 on Tuesday.

When investing in emerging markets, it is important to keep in mind the inherent risks involved.  A good way to mitigate these risks is through the use of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.  According to the latest data at www.SmartStops.net, the price points for the aforementioned ETFs are: FXI at $42.12; INP at $62.01; EWZ at $74.27; RSX at $30.30; BKF at $45.42.  These price points change on a daily basis as market conditions fluctuate and updated data can be accessed at www.SmartStops.net.

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