A BRIC Wall? Exploring Alternatives in International Investing
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As confidence in the eurozone continues to wane, many investors have become reluctant to tie their money up in international assets. Despite the danger of a European recession and the widespread consequences it would bring, however, there is still ample reason to look overseas for your investments. International trade as a fraction of the national economy has tripled over the past 40 years, granting ever easier access to the rapid growth of emerging markets. Now, more than ever, it is possible for even beginning investors with less capital to take a stake in this growth due in large part to the increased availability of international ETFs.
Until recently, the BRIC nations have represented the obvious choice for investment in emerging markets. But slowing growth in China, inflation spikes in India, and decreased demand for commodities in Brazil and Russia are marring the outlook for these countries -- at least for the time being.
In 2011 ETFs covering the BRIC nations dropped in value by as much as 24% after a decade of outperforming the S&P 500. While things don’t seem to be improving any time soon, there are, as always, other options, even in the emerging markets sector.
Let’s look at South America first. After Brazil, the two largest economies in South America are Argentina and Colombia. The latter has one of the highest growth rates in Latin America and, despite its trade exposure to Europe, benefits from a free trade agreement with the U.S. passed last October. Colombia is also rich in resources, including gold, oil, coal, and coffee. One way of taking advantage of this increasingly relevant economy is through a bond ETF such as Global X FTSE Colombia 20 ETF (NYSEMKT: GXG). Though its returns suffered along with other emerging market funds in 2011, the fund is up over 250% since 2009 and stands to gain from improving social conditions in the country. If the threat of a global recession keeps demand for gold and other precious metals high, Colombia could be one of few winners.
In Asia, Mongolia represents a market that has received less attention than deserved. With a population a third of the size of New York City, an abundance of mineral resources, and a choice geographical seat between China and Russia, Mongolia can only expand its economy. Mining companies Rio Tinto (NYSE: RIO) and Ivanhoe Mines (NYSE: TRQ) have made moves to tap into Mongolian copper and gold reserves, which should put them at the forefront of a potential boom.
The final frontier in emerging markets is Africa. While much of the development in central and northern Africa is still years (or decades) away, there are ways to get your foot in the door and track this progress. The most convenient of these methods again is ETFs: Market Vectors Africa (NYSEMKT: AFK) is a solid place to start, and the iShares MSCI South Africa Index Fund (NYSEMKT: EZA), which mainly follows securities on the Johannesburg Stock Exchange, is probably the most conservative way of putting your money into African growth.
Robert Coleman does not own shares in any of the companies mentioned in this entry.