Alternative Investments in BRIC
By Graham Summers
March 14, 2007
Add BRIC to your list of acronyms. You're going to be hearing it a lot over the next few decades.
BRIC stands for Brazil, Russia, India, China: the four largest emerging markets. It's not clear who coined the term, but Goldman Sachs economist Jim O'Neill was the first to publish research on the idea in 2003.
O'Neill believes that by 2050, the BRIC countries will become the four dominant economies of the world, comprising over 40% of the world's population... with a combined GDP of $14 trillion.
The mainstream financial press already heavily covers India and China. George W. Bush's recent ethanol agreement with Brazil is bringing that country's economy into the spotlight.
And now Russia is getting some attention, too. Yesterday's Wall Street Journal featured a front-page story on Russia's economic growth since Putin's election in 2000. It read, "Under Mr. Putin, Russia's per-capita gross domestic product has quadrupled to nearly $7,000 and about 20 million people have been lifted out of poverty." (Emphasis added.)
All four of the BRIC countries are risky to foreign investors. But that's not stopping them from piling in...
Goldman Sachs recently reopened its Moscow office. The investment bank hasn't had a presence there since the Russian government's bond default in August 1998. Similarly, Lehman Brothers is trying to hire Nick Jordan, Deutsche Bank's co-head of investment banking in Russia.
There are a number of ways to put your money into a rapidly growing emerging market. You could buy infrastructure plays. On the other hand, Jim Rogers (legendary investing partner of George Soros) often recommends buying banks and breweries – no matter what, people are going to need a place to put their money... and drink it away.
However, many of Russia's banks are owned by oil or natural resource oligarchs, who funnel the funds into their own ventures. The corruption there is simply too great.
To me, a much better bet is in collectibles: coins, paintings, and antiques.
As Russia's (or any other BRIC country's) middle class grows, more citizens are going to want nice things from their cultural heritage to feather the nest.
I recently returned from a trip to Zurich, Switzerland. Russians were everywhere. In the hotel, on the streets, perusing the shops. They were there for business... and to buy... antiques, paintings, coins: anything from Russia's past.
I'm not talking about masterpieces or works by well-known Russian artists. Rather, I'm talking about artwork that a Russian middle-class family could afford.
You see, Russia, much like China, suppressed and destroyed a great deal of its cultural heritage in the 20th century. Many artifacts and items of culture were smuggled into Switzerland and other European countries.
Now, the Russian nouveau riche is flying in looking for these goodies. And as Russia's economy expands, even more money will pour in. There's quite a profit to be made buying now and holding for the next five or so years.
I'm currently establishing several contacts for Russian artwork and rare coins. You'll meet them on these pages soon...
Good trading,
Graham
