Monday 24 June 2019 5:11 am

The ‘Brics’ concept is a lazy and misguided tool for assessing emerging markets

Seen in hindsight, the “Brics” concept was the perfect analytical tool for our lazy age, making one big point that required little thought while ignoring the nuance that is the basis of all good political risk analysis.

Coined in 2001 by then Goldman Sachs chief economist Jim O’Neill, the idea that the rising developing countries (specifically Brazil, Russia, India, China and South Africa) would increasingly come to play a central role in the world amounts to a very big idea that is entirely on the money.

Indeed, the single biggest historical headline of the age we live in is surely that the 500-year political and economic domination of the world by the west has come to an end. The analytical study of international relations must now be truly global, rather than simply being focused on the Transatlantic region.

To put it mildly, this is not a small point to get right. O’Neill deserves great credit for seeing this (and, more importantly, marketing his assessment) well before the lion’s share of analysts.


Indeed, in the 10 years between 2003 and 2013, O’Neill’s prognostication seemed to be coming true before our eyes: the Brics’ share of global GDP increased from just under 20 per cent to an impressive 30 per cent.

However, since then we have seen the real limits of the Brics idea. The past few years have made a mockery of the idea of the uniform rise of emerging markets, as following the Great Recession of 2008, the five Brics countries have marched to the beat of very different drums.  

For today’s investors to really understand the new world we live in, they cannot simplistically lump emerging markets together, as their political and economic trajectories have headed in such starkly different directions.

Rather, the disaggregation of emerging markets is the absolute key to financial success.

The Brics concept artificially bound together countries that had very little in common, and were headed to differing historical destinations. Conveniently and erroneously, it made the actual study of the world in political risk terms unnecessary, as the idea of the uniform rise of emerging markets took hold.

But knowing how the world actually works and obsessively studying its nuances and differences is a step that simply cannot be lazily ignored.

Instead, I proposed in 2014 a fresh way for looking at the world’s emerging market economies: the Sergio Leone test, named for the peerless Italian director of spaghetti westerns.


The future for some emerging markets will be good, for others bad, and for yet others downright ugly. Disaggregating them into these very different categories will amount to the holy grail for global investing.

For the obvious reality is that the Brics have not weathered the Great Recession in equal shape.

Despite its many and real problems (it could well get old before it gets rich), China comes out of the maelstrom relatively stronger, its overall growth rate holding up, particularly in comparison with sclerotic Europe and its emerging market competitors.

In contrast, the shine is off corrupt Russia, sclerotic South Africa, and chaotic Brazil.

Beguiling India, meanwhile, with the stunning recent re-election of Narendra Modi as Prime Minister – following adoption of the Goods and Services tax which has made it a common market for the first time in its history – has taken off towards sustained growth rates north of seven per cent.

The Leone test must extend beyond the Brics concept in another vital way, as the limited number of emerging market countries the latter assesses does not do justice to the investment opportunities out there in the wider world.

Beyond the Brics, investors need to take a close look at Mexico, Indonesia, Nigeria, Turkey, South Korea, Argentina, Vietnam, Israel, Malaysia, Singapore, and Ethiopia, among others. To reap the advantages of the emerging market phenomenon that the Brics concept initially (if only partially correctly) illuminated, a wider net must be cast, and wider analysis is an absolute necessity.

And so we must all take the Leone challenge, looking for winners and losers in the unique and specific circumstances of each major emerging market country, and identifying the core reasons for their radically divergent performances.

The Brics concept brilliantly made clear that there was a pot of gold at the end of the treasure map that is the emerging market scene. However, it is the Leone test that gets us there, admonishing investors that they must keep digging.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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