Goldman Sachs’ recent decision to merge its BRIC fund into a broader emerging-markets fund does not signal that the idea of grouping the economies of Brazil, Russia India and China has outlived its usefulness. Rather, the move is a timely reminder that analytically sound concepts need not always translate into durable investment approaches — and for good reasons.
The BRIC concept was coined in 2001 by Jim O’Neill, then Goldman’s chief economist, to reflect the growing systemic influence of the four emerging economies. It designated a group of highly populated countries (totaling almost 3 billion people) that not only would experience significant internal changes but also have an increasing influence on the global economy and markets as a whole.
O’Neill was right, and in quite a wide-ranging sense.
His BRIC notion signaled a much broader economic and financial maturation of the emerging world: In well under a decade, these economies went from being beset by domestic financial crises and economic meltdowns (including the 1997/98 Asian crisis, the 1998 Russian default and the 2002 Brazilian near-default) to taking their place as powerful global growth locomotives that played a critical role in pulling the world economy out of the 2008 financial crisis.
More recently, however, these countries have tended to struggle. All four are experiencing lower growth rates, with the weakest among them (Brazil and Russia) in recession. All but India have gone through notable bouts of internal financial market instability. Brazil and Russia have also experienced a destabilizing meltdown in their currencies.