Why Should You Invest In Brics?

Few financial thoughts have caught on as rapidly as "BRICs," which stands for Brazil, Russia, India and China, the "Big Four," fast-growth economies on earth today. Goldman Sachs economist Jim O'Neill coined the phrase back in 2003, and it currently has come into well-known use as a symbol of a shift in global economic power away from the developed G7 economies toward the developing world.

By dint of their sheer size and population -- and their collective judgment to embrace their own particular brand of capitalism -- BRICs are the economic way forward for the world. Together, the BRICs cover above 25% of the world's land mass and 40% of the world's population. And thanks to their predicted rapid growth by 2050, the BRICs can cover the joint economies of the present richest countries of the world. China and India will turn out to be the dominant global suppliers of manufactured goods and services. Brazil along with Russia will be the world's top suppliers of commodities. The BRICs today already account for the combined GDP of $15.435 trillion dollars on the buying power basis. By that measure, they're already as a group better than the United States.

Here is what Goldman Sachs had to disclose in its original statement "Dreaming with BRICS: The Path to 2050," published in 2003.

* China's financial system will surpass Germany in the next few years, Japan by 2015, and the United States by 2041.

* India's development rate would be the highest -- not China's -- and it'll overtake Japan (today the world's second-largest economy) by 2032.

* BRICs' currencies possibly will increase in value by 300% over the following 50 years, provided that a big tailwind for investors in BRIC assets.

* Taken together, the BRICs can be better than the United States and also developed economies of Europe within 40 years.

* By 2025, BRICs will bring another 200 million individuals with incomes above $15,000 into the world's economy. That's equal to the combined populations of Germany, France plus the United Kingdom.

If anything, Goldman Sachs has become more bullish on the BRICs because it published its first report. The size of China's economy overtook Germany's economy in 2008, a year prior to projected, but will overtake Japan in 2010. Goldman Sachs now believes that the Chinese economy will overtake the America by 2027. And with India accounting for 10 of the thirty fastest-growing urban areas on the earth and 700 million individuals moving to cities before 2050, its impact on the world financial system will be bigger and quicker than implied in 2003.

The BRIC nations have stepped on top of the world economic phase which has a newfound confidence. Shanghai hosting the World's Expo in 2010 highlights its aim to become a world financial hub by 2020 -- investing twice what rival Beijing did while hosting the 2008 Olympics. Brazil is about to go on board on its own infrastructure boom because it is hosting both the World Cup in 2014 as well as Olympics in 2016. Two of the world's leading five in the Forbes Rich list are from India. (Number one is from Mexico.) In 2010, Moscow has the second-highest number of billionaires on the earth after New York City.

Here's why it's possible look forward to the BRICs' roll to continue. Firstly, for the first time in current memory, BRICs are growing not via borrowing, but by investing. China has the world's highest savings rate. Brazil and Russia are sitting on huge foreign currency reserves, thanks to windfalls from oil profits. Even freewheeling Brazil is showing heretofore unseen discipline by running a financial surplus.

Second, high commodity prices have put extra money in BRICs' pockets than ever before. Which means much less threat of a economic meltdown like the ones Brazil and Russia had in 1980s and 1990s.

Finally, higher credit rankings indicate that BRICs today can issue debts in their currencies. A decade after defaulting, Russia has higher credit ranking than the European Union economies of Greece and Portugal. The result? A bit more balanced financial expansion and financing of investment that both rely on the whims of foreign investors.

Here's a reality check though. Even though their latest high profile, BRICs have to get a lot of things right to copy the achievement of Japan, Germany and South Korea. Potential problems include China's oppressive regime, India's choking bureaucracy, Brazil's history of policy flip-flops and Russia's gangster capitalism.

So yes, the BRIC economies are together already around 15% better than the United States. However take away the economic affirmative action of purchasing power parity, and look at wealth in actual terms, as well as the U.S. GDP ($14 trillion) is almost 40% better than all four BRICs combined ($8.6 trillion). Using actual GDP, the typical United states is almost fifteen times richer than his or her BRIC counterpart. After all, you can find 2.6 billion total citizens in the BRICs with only 308 million Individuals. And regardless of the nation's billionaires, more than 200 million Indians live on less than $2 a day.

And historical prediction is known as a mug's game. The year 1900 had its own form of BRICs: Argentina, Russia, Austria-Hungary as well as the United States were the fastest-growing economies in the world. Investors were clamoring to buy Russian railroad bonds for a similar reasons that they're purchasing Chinese solar stocks at the moment. What did the world seem like in 1950? 2 world wars and a number of other revolutions later, Austria-Hungary and Russia didn't even exist; Argentina went from economic bull to basket case, and the United States was a global superpower, responsible for 50% of the world's economic productivity.

Cautionary tales notwithstanding, BRIC countries at present offer some of the most exciting investment decision opportunities in the planet. You possibly can earn more money in one month investing in BRIC stocks than what one can grind out in the S and P over 3 years. Brazil's stock market, the Bovespa, has finished from about 9,000 in September 2002 to over 70,000 in May 2008. Savvy investors in Russia made more than 60 times their money between the meltdown in September 1998 and the market's peak in May 2007.

And today, it's more convenient than ever to put money into BRICs. Among companies listed on the New York Stock Exchange, 34 are Brazilian, six are Russian, eight are Indian and 16 are Chinese. And that doesn't include technology firms which might be listed on the Nasdaq. You'll find some BRIC exchange-traded fund also -- iShares MSCI BRIC Index (BKF) and SPDR BRIC 40 (BIK).

Buying BRICs be able to give you one of the fascinating and profitable ways to invest over the coming decades.