(By Austin Hatley) The BRICs are priced for an economic meltdown...
BRIC is a grouping acronym that refers to Brazil, Russia, India and China. These 4 countries represent the largest and most influential economies in the developing world.
In the past 10 years, the BRIC countries have increased their contributions to global economic output four-fold. According to a recent estimate by the International Monetary Fund (IMF), the BRIC economies will comprise 20% of the global gross domestic product this year.
But despite their rapid economic growth, the combined stock market values for the BRIC countries have been falling lately.
Take a look at the chart below...
The chart above shows the economic contributions of the BRIC countries over the last five years vs. iShares MSCI BRIC Index (NYSE: BKF), an ETF that tracks the performance of the BRIC stock markets.
As you can see, the BRIC countries have steadily grown their economic contributions from 13% of global GDP in 2007 to 20% in 2012. Yet despite their steady economic growth, their stock market value has fallen over 33% since 2007.
According to a recent study by Bloomberg, the value of capital invested in the BRIC stock markets is equal to 16% of total equities. With the BRIC's economic output estimated to total 20% of the global GDP this year, that's a four percentage point gap between the amount of money invested in the BRICs and their predicted economic contributions.
The last time the spread between these two metrics was this high was in 2005, and within 12 months the MSCI BRIC Index gained 53%.
It looks like the market is pricing the BRICs for an economic catastrophe. Unless there is a total economic collapse in the developing nations, this looks like an excellent opportunity to pick up some of the fastest growing stocks of the 21st century at dirt-cheap valuations.
Risks to Consider: Fears of a global economic slowdown have weighed on the valuations of the emerging markets lately. As a result, if the global economy continues to stagger along, it could be a while before investors return to BRIC equity markets.
Action to Take --> It is estimated that BRIC economies will overtake the G7 developed economies by 2027. If the global economy starts to gain some momentum, we may never again see the BRICs at such low valuations.
If you're thinking about investing, then the easiest way to gain exposure to this space is with an exchanged traded fund (ETF) like SPDR S&P BRIC 40 (NYSE: BIK).
-- Austin Hatley
Austin Hatley does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Austin Hatley