Investment Strategies
BRIC Growth Story To Become Consumer-Driven, New Openings For Investors, Says L&G
Last year’s scenario when the BRIC countries delivered strong economic growth without investment returns was an anomaly, according to Brian Coulton, emerging markets strategist at Legal & General Investment Management.
Speaking at a press briefing in London, Coulton said that he thinks that although the era of double-digit GDP growth is over, it will remain high compared with developed countries and present new opportunities to investors.
In the past decade, when the Chinese economy grew from the same size as France's to become bigger than the German and the French economies put together, the impact of the BRICs has been particularly marked in the commodities and capital goods markets. “That is not going to be the story in the next 10 years,” Coulton said. “Even though we will have slower growth overall in China, we will have faster growth in consumer spending. You will see the same rebalancing in India.”
“There will be a shift from investment, capital goods markets and commodities to be all about the consumer, and that is where the opportunities are going to be,” he said. “Sell German capital goods manufacturers and buy Italian handbag manufacturers.”
Meanwhile, despite superior growth in Brazil, Russia, India and China compared with the West in 2011, all their stock markets suffered setbacks. Coulton emphasised that last year was bad for equity markets because of inflationary pressures and risk aversion. “Let’s take it back further in time: if you had put $100 in the S&P500 in 2000, it would be worth $90. If you had put $100 in the weighted average of BRIC stock markets, it would be worth $330 today,” he said.
Coulton believes that GDP growth in China and India will slow to around 7.5 per cent at an average annual rate to 2020. Brazil will improve slightly, from 3.6 per cent in 2000-2010 to 4 per cent in 2011-2020. The only BRIC that will see a substantial drop, according to Coulton, is Russia, because of its aging population. He forecasts Russian growth to drop from 4.9 per cent to 2.8 per cent at an annual rate over the current decade.
