The BRIC in Wall Street: Key emerging markets and the US Treasury
An investor's must-know guide to emerging market equities (Part 2 of 6)
How many emerging economies are there?
Our readers might be thinking, “Aren’t there a plethora of emerging (or developing) economies?” The answer is yes. MSCI classifies 21 countries as emerging markets, while Standard and Poor’s lists 20. The only difference between the two is South Korea, which appears in the MSCI list but not in Standard and Poor’s.
While each of these economies has its own distinct characteristics, four of them stand out due to their massive size and growth potential. They are Brazil, Russia, India, and China (or BRIC)—not necessarily by order of importance!
Jim O’Neill, the retiring Chairman of Goldman Sachs Asset Management, came up with the acronym back in 2001 while discussing the growing economic importance of emerging markets. He said in his original paper, “Over the next 10 years, the weight of the BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policies in the BRICs.”
While emerging markets are characterized by a growing consumer base and a large workforce to drive growth in years to come, their fortunes are also linked to global factors due to highly integrated global financial markets.
Since the U.S. Fed announced its intention of gradually reducing the pace of its bond buying program, emerging market currencies and equities have remained volatile as the inflow of cheap dollars reduced. We’ll explain the connection between emerging market equities and U.S. Treasury securities in the upcoming parts of this series.
Investors willing to invest in emerging markets can do so by investing in diversified emerging market ETFs such as the iShares MSCI Emerging Markets Index Fund (EEM). Certain ETFs, such as the iShares MSCI BRIC Index Fund (BKF) and Guggenhiem BRIC ETF (EEB), invest particularly in BRIC economies. Others, such as the Market Vectors Russia ETF (RSX) and WisdomTree India Earnings Fund (EPI), invest in particular countries.
Throughout this series, we’ll show the connection of the leading stock index for particular countries and the U.S. ten-year Treasury security yield.
To learn about how the Brazilian stock market correlates with the U.S. Treasury bond market, read on to the next part of this series.
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