FinancialEdge: Potholes In The Golden BRIC Road

Emerging market investing has been a hot-and-cold investing subject for three decades, and the BRIC countries of Brazil, Russia, India, and China have really tended to dominate the discussion over the past 10 to 15 years. While it is true that there is incredible promise in these countries, there are also more challenges and dangers than many investors realize. Investors would do well, then, to take a closer look at these economies and consider some of the risks that could undermine these "once in a lifetime" investment opportunities. (Brazil, Russia, India and China are becoming more popular for investing, but there is still plenty of risk among BRIC countries. Check out Understanding BRIC Investments.)


Poverty
Poverty is a dangerous problem for any country to have, as it not only prevents people from maximizing their potential, but it also represents a dangerous store of resentment and potential political instability. Poverty is a significant issue in Brazil and India, as roughly one-quarter of those populations live below their country's poverty lines.

Unequal distribution of wealth is a similar problem, and perhaps even more problematic from an investment statement as a voting populace may look towards politicians that promise to address this inefficiencies with business-unfriendly practices (as has happened in Venezuela). Brazil scores very high on lists of inequality (as measured by the Gini coefficient), and China is quite high as well (many people do not realize how poor the Chinese living in the countryside are). In comparison, Russia and India are much closer to the standards of the Western world in terms of income distribution.

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Forget BRIC, It's Time For CIVETS

Wall Street loves sound bites and handy acronyms. Whether it is ROE, NPV or NAV, there is no shortage of handy terms. For growth-oriented investors, BRIC has been one of the most important acronyms of the past ten years. Encompassing the dynamic economies of Brazil, Russia, India and China, BRIC was a guidepost for many investors and there is no questioning the strong stock performance of this group (particularly China and Brazil). (Historically, international investing has worked out well for investors, but this may no longer be the case.

Things change, though, and it may be time for investors to pay more attention to a new name. A civet may be an odd-looking creature (imagine a cross between a raccoon and a cheetah), but the CIVETS could be the next major destination for international investing.

Meet the CIVETS
CIVETS is an acronym, reportedly coined by Michael Geoghegan at HSBC (NYSE:HBC), for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. Investors may think of this as a second-generation of emerging economies, as these countries generally have fast-rising (and young) populations, relatively well-established financial infrastructure, internal stability and a pathway towards significant economic growth and potential co-leadership in their economic spheres.


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Please note - I ordinarily also would have mentioned Turkcell (NYSE: TKC) as part of this group, but I own Turkcell in my own accounts, and therefore cannot mention it within Investopedia articles.