Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Building a Better BRIC ETF - Brazil, Russia, India and China Investment

Stock-Markets / Investing Feb 21, 2007 - 03:15 PM GMT

By: Michael_K_Dawson

Stock-Markets

In a 2003 research paper Goldman Sachs argued that the combination of countries Brazil, Russia, India and China (BRIC) has the economic potential to be larger than the G6 in US dollar terms by 2050.  The countries are forecast to encompass over 40% of the world's population and hold a combined GDP of nearly $15 trillion dollars. 

Goldman predicts China and India will be dominant global suppliers of manufactured goods and services and that Brazil and Russia will be dominant suppliers of raw materials. Brazil and Russia would form logical commodity suppliers to China and India;   cooperation amongst the four countries would create a powerful economic block.


Although the relationships are logical, it is not a no-brainer that the potential will be realized.  Take a look at these headlines.

  • 3/06 Radio Free Europe - Russia/China: ‘Partners' Struggle With an Unequal Relationship 
  • 4/05 Economist - Brazil and China: Falling out of love 
  • 10/05 Wall Street Journal - Brazil Regrets its China Affair 

However, these opportunities are too great to not find common ground.

  • 7/06 Chinese Gov.cn - Year of Russia in China helps deepen strategic partnership of cooperation 
  • 9/06 Embassy of the People's Republic of China in the US – Top Chinese legislator hails China-Brazil economic relations.  China and Brazil will meet their goal of bringing bilateral trade to 20 billion dollars in 2007. 
  • 11/06 China Daily- China, India trade to hit US$20b this year. Bilateral trade between China and India is expected to hit US$20 billion this year, fulfilling the target set by both governments two years ahead of schedule 

Each country is acutely aware of the potential benefits, so these relationships will be handled with care.

Investors who have recognized this opportunity have profited.  An equal-weighted basket of ETFs representing each country - Brazil (EWZ), Russia (TRF), India (IFN) and China (FXI) returned over 45% last year. Significantly outperforming the MSCI Emerging Markets ETF (EEM, +24%) which includes all of the emerging market countries.  This has Wall Street feverishly creating new products to capture this trend.  Claymore introduced the first BRIC ETF last fall (EEB) that tracks liquid U.S. exchange-listed ADRs and GDRs.  However, is Claymore's allocation of 49% Brazil, 31% in China, 14% India and 6% the ideal allocation?  Last year Claymore's allocation missed much of Russia's gains as the Russian ETF (TRF) returned 62%. 

Individual investors no longer have to wait on Wall Street's products.  Low cost brokers and basket trading have made it financially feasible and practical to create your own “pseudo-ETF.”  Read my article on low cost basket trading for more details.

Currently, I am using two pseudo-ETFs to invest in the BRIC theme.  The first is composed of stocks that provide raw materials and supplies necessary for the industrialization of the BRIC economies.  The second is simply an equal-weighted basket of EWZ, TRF, IFN and FXI.  I prefer this approach versus the Claymore, since I can control the allocations.   So, if you only want broad exposure use the Wall Street products or a variation similar to mine.

That being said, I am in the process of reconstructing the second method.   I believe in the long run more upside will be realized by addressing specific problems facing the BRIC countries as opposed to the broad-brush approach.  So, the second ETF will be composed of stocks that address two major problems facing the BRICs – pollution management and logistics/transportation. I will address logistics and transportation in a subsequent article. 

Pollution Management:

China's rapid economic growth has had some very costly unintended consequences. Pan Yue, vice minister of China's State Environmental Protection Administration, summed up the problem, in a November 2006 commentary republished in the Wall Street Journal, that “China is dangerously near a crisis point” with its environment. A third of China's people drink substandard water and a third breathe badly polluted air, according to Pan. “True, China has made the kind of economic advances in three decades that required 100 years in Western countries. But China has also suffered a century's worth of environmental damage in 30 years.”

China can no longer neglect this problem as it is costing the country an estimated 10% of GDP every year.  That equates to more than US$200 billion a year.  Also the impact of pollution on human health has become more obvious and is leading to social unrest of affected citizens.  In a report released in June of 2006, Zhu Guangyao, deputy chief of the State Environmental Protection Agency stated that “The Chinese government will mobilize all forces available to solve the pollution problems that are causing serious harm to people's health.”  In other words, serious dollars will be thrown at this problem to the tune of $125 billion.  The authorities plan to spend about $125 billion over the next five years to improve water supply and waste water treatment, according to recent reports in the official media. More than $43 billion has been earmarked for sewage treatment plants in urban areas.

China's problem is much larger than the other BRIC countries, but they are facing similar issues.  I believe that the following companies will be major benefactors from this clean-up effort. 

Veolia Environment (VE) is world leader in environmental services operating in four complementary segments: water management, waste management, energy management and passenger transportation.  In January, it won its 21st contract in China.  It operates in 19 of the 34 Chinese provinces serving the water needs of 20.59 million people. The company is also very active in Russia.  Since 1991 Veolia Water has had a majority stake in “Saint Petersburg - Pure water”, a company specializing in research into leakage from municipal water supply networks.  In 2002 Veolia Water became the leading international water services company operating in Russia from Moscow and currently from St. Petersburg.

Veolia Environment (VE) is world leader in environmental services operating in four complementary segments:

SUEZ (SZE) provides equipment and services that protect the environment worldwide. Its activities include drinking water production and distribution, waste water collection and treatment, and waste treatment and recovery.  The company operates 20 joint ventures in China.  These joint ventures treat or manage water distributed to 13.5 million people in major cities including Shanghai.

SUEZ (SZE) provides equipment and services that protect the environment worldwide

Companhia de Saneamento Basico do Estado de Sao Paulo (SBS) is the Americas' largest water utility and #3 worldwide.  The company provides water and sewage services in the territory of the state of Sao Paulo, Brazil to residential, commercial, industrial, and governmental customers.  It distributes water to approximately 22.6 million people and also provides sewage services to approximately 18.3 million people.

Companhia de Saneamento Basico do Estado de Sao Paulo (SBS) is the Americas' largest water utility and #3 worldwide. The company provides water and sewage services in the territory of the state of Sao Paulo, Brazil to residentia

Covanta Holding Corporation (CVA) is the fourth and final company in the environmental segment of the basket.  The company, through its subsidiary, Covanta Energy Corporation, engages in the development, construction, ownership, and operation of infrastructure for the conversion of waste-to-energy and independent power production in the United States and internationally. Covanta has a long history in China and just recently announced a joint-venture partnership with Chongqing Iron & Steel to participate in China's rapidly growing waste-to-energy market.

Covanta Holding Corporation (CVA) is the fourth and final company in the environmental segment of the basket. The company, through its subsidiary, Covanta Energy Corporation

These four stocks will form the one pillar of the revamped BRIC “pseudo-ETF.”  The other pillar will be comprised of stocks in the logistics and transportation sectors.  Why those sectors?  By some estimates, logistics accounts for 40 per cent of the cost of goods sold and four-fifths of production-cycle time in China. This compares with around 10 per cent of the cost of goods sold in the US.  The antiquated logistic approaches combined with the fractured highways / railways and primitive modes of transpiration are tremendous opportunities for efficiency improvements. 

By Michael K Dawson

http://www.thetimeandmoneygroup.com/

Michael K Dawson founded the Time and Money Group with the aim of educating and sharing 20 years of experience on how to reach financial freedom. "Financial Freedom is freedom to focus on what is truly important to you and your family without having to trade time for a wage. It is enabled by a portfolio of income producing assets, managed by you, which generates sufficient income to cover your yearly expenses on an ongoing basis. It provides both time and money". The intent of his website is to become a repository of information to put you on the fast track to becoming financially free. For further infromation visit http://www.thetimeandmoneygroup.com/


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules