ALPHA Structured Investments
Global Alpha 2009 BRIC

Global Alpha 2009 : BRIC

The BRIC sector (Brazil, Russia, India and China) have dominated global economic growth in the last few years and despite a global slowdown, they will continue to do so for the rest of this decade and beyond. China will emerge as the largest economy by 2040 (or sooner) and India is not far behind. Each of these 4 countries is growing for different reasons; while China and India are experiencing their own Industrial Revolutions, Brazil and Russia are powered by their resource richness. We can observe the following key points for the BRIC economies, as a result of the impact of the global financial crisis:

  • The BRICs are vulnerable to reductions in capital inflows, with China being the least affected as a result of the global contraction in capital flows.
  • GDP forecasts for the BRICs have been revised down as a result of global financial turmoil.
  • Although each of the BRICs has benefitted from foreign direct investment (“FDI”), they each have large domestic reserves and will weather the storm even if FDI levels fall substantially from recent levels.
  • The BRICs’ large foreign currency reserves will also assist with currency stability as well as providing liquidity to assist with domestic expansion programs.

Revised GDP growth forecasts from Goldman Sachs (the architects of the BRIC concept) show Brazil as the slowest growth market, with China still providing massive growth to the global economy, and with Russia’s current account surplus falling from 6% of GDP in 2008 to 0.6% in 2009:


Since the BRICs all have large capital reserves, they are far less reliant on capital inflows than many other countries – and as such will be far more resilient in the face of the shrinkage of capital availability around the world next year. Net FDI is less than 10% of GDP for each of the BRICs – and its this that will allow them to continue to fund their growth next year.:

With strong real GDP growth (albeit down from last year’s levels) the BRICs remain an attractive destination for investment. And coupled with sharp falls in their major equity indices, the BRICs are good value for Australian investors seeking growth and diversification. Alpha does counsel the use of protected products as the preferred investment vehicle for the BRICs – providing the needed support for wary investors, who otherwise may be inclined to defer or not be able to commit to making an investment in this important sector.


Source: GS

Alpha Structured Investments