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Journal of Indexes

Goldman’s BRIC Expert Weighs In

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The Origins And Evolution Of Delta-One

More than a decade ago, Goldman Sachs analyst Jim O'Neill coined the "BRIC" acronym, referring to Brazil, Russia, India and China, in a 2001 research report, "Building Better Global Economic BRICs." The paper highlighted the unique economic features and growth potential of the four countries, kicking off a swell of investor interest in them—and other emerging markets countries—that continues to this day. The Journal of Indexes spoke with O'Neill recently about the BRIC countries today and other emerging market issues.

JOI: Do you still view the BRIC countries as a good investment for the decade ahead?
O'Neill: I view them as not only a good investment, but collectively the most important economic and investment scheme of our generation still, even though I think they may have slower rates of GDP growth this decade than the last decade.

On average, they'll probably grow by about 6.5 percent as opposed to about 8.5 percent. But as they get bigger, their importance to the world will actually become bigger. One thing I think many people don't get is that even if they have slower growth, they're becoming a bigger and bigger part of the world—meaning that the world economy's growth trend might actually be rising even with them having slower growth. I think the BRIC story, despite it going a little bit out of fashion, continues to be the biggest economic investment opportunity of our era.

JOI: Does that have something to do with the fact that they're representing a huge chunk of the global population?
O'Neill: Exactly. Sometimes it amazes me that people regard it as such a mystery. You've got between them more than 3 billion people in a world of 7 billion. Hardly surprising, is it, really?

Two big forces of our era make having a lot of people an advantage. One is technology, particularly the Internet/mobile telephony. It gives large, populated countries a chance to advance much faster than before. The second is globalization. Globalization and technology are fantastic things for large, populated emerging economies.

JOI: You were quoted in the press as saying that China has the best prospects of the four countries.
O'Neill: In terms of investing, I think that that's true at this particular moment in time. The Chinese market's become very cheap, and I think people are sort of giving up on the place, which is quite interesting. Given the kind of things that I follow and what they're trying to do, I believe Chinese consumer-related stocks, in particular, look quite cheap.

JOI: Can you trust the data coming out of China?
O'Neill: I don't think it's a new problem. Could you ever trust the data? Could you trust the data anywhere? I don't think they deliberately fiddle it to make it seem better or otherwise. In a place that's changing so dramatically, can you trust any data series about today that was true five years ago? Possibly not, but this comes down to my 31st year of looking at all this stuff: You have to corroborate published data with data from other countries and company anecdotes. I've no reason to particularly distrust Chinese data any more than elsewhere. I often joke to people that if you think Chinese data's bad, try looking at the U.K. data.

 

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