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Fund Focus: Bric fix

Gregor Watt talks to investment managers about their hopes and fears for Brazil, Russia, India and China, the economies that continue to dominate the emerging market scene

Global emerging markets cover a huge geographic area but the overall investment returns of the sector continue to be dominated by the four giants of Brazil, Russia, India and China.

HSBC GIF Bric equity fund manager Nick Timberlake says: “The collective Bric nations are home to more than 2.7bn people, which represents 40 per cent of the world’s population. They are rich in mineral reserves and their rising affluence means domestic consumption is a key driver for growth.”

Although the average return for the emerging markets sector was -12.8 per cent over the past 12 months, over three and five years the average fund has returned 29.4 per cent and 22.3 per cent respectively.

This compares well with the UK all companies sector, which returned -7.3 per cent, 33.5 per cent and -7.1 per cent over the last one, three and five years respectively, although emerging markets have experienced a lot of the extreme volatility that has plagued many developed markets.

According to Timberlake, current low valuations are offering good opportunities for investing for the long term. He says: “The short-term opportunity is also attractive. Following several years of volatility, these markets are trading at low valuations and are forecasting robust earnings’ growth. Bric policy-makers have been using their monetary powers to erode inflation, allowing a number of Bric central banks to ease policy in a bid to offset global weakness.”

He says the undervaluation of emerging market currencies is also a good reason to consider exposure to Bric markets, as any potential appreciation should help boost investor returns.

But despite being lumped together under the Bric label, the four countries have contrasting economic drivers and very different headwinds.

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