GOLDMAN Sachs Asset Management has $US824 billion invested around the world on behalf of its clients, so when one of its senior executives comes here to tell us we’ve got our investment sights set wrong, it’s worth listening.
Katie Koch is a London-based senior strategist for the asset manager. She’s also chief of staff to GSAM’s chairman, Jim O’Neill, the person who in 2001 released one of the most influential pieces of market analysis in history. In it, he identified Brazil, Russia, India and China as emerging economic superpowers, gave them a nifty nickname – the BRICs – and told investors to get on board. We all should have.
Brazil’s sharemarket is 27 per cent below its May 2008 high and down 10.2 per cent in the past year. Sentiment has shifted against the miners in Brazil as it has everywhere, evidenced here yesterday by the decision of investors to ignore solid June quarter production numbers from Rio Tinto and sell in response to modest cuts in forecast coal and copper production.
The Brazilian sharemarket is however still 3½ times higher than it was on January 1, 2001. Russia’s resources-heavy market is down 17 per cent in the past year, but is still 8.8 times higher than it was at the end of the ’90s, and India’s market is more than four times higher. Our market is up a lousy 28 per cent.
China is an investing oddity, as I mentioned last week. It has been the fastest growing BRIC, but its sharemarket is back at levels first reached in 2006, partly because Beijing is dragging return on capital down as it invests aggressively for longer term economic growth and job creation.
Still, three out of four isn’t bad, and GSAM is now promoting an expanded play within the 168-nation emerging markets sector that the four BRICs dominate: eight high-growth economies in all, comprising the original BRICs, plus Mexico, Indonesia, Korea and Turkey.
GSAM underestimated how quickly the four BRICs would grow in its first BRIC report. It expected them to roughly triple their gross domestic product to a bit more than $US6 trillion by 2010, and their GDP actually topped $US10 trillion in that year.
Now, GSAM predicts that its expanded eight-nation ”Growth Markets” group – the BRIMTICKs perhaps? – will account for more than 55 per cent of global growth in the next 10 years, almost three times as much as the United States and Europe combined.
They already account for 22 per cent of the $US43 trillion value of the world’s sharemarkets. GSAM expects them to have a 35 per cent share of an $US83 trillion global sharemarket by 2020, and a 45 per cent share of a $US145 trillion market by 2030. It predicts that the United States’ share of global market value will fall from 32 per cent to 23 per cent in the same time, and that the share of other developed markets including Australia’s will fall from 37 per cent to 22 per cent.