The BRICS are dead as an investment concept and their days as an influence-wielding bloc of key emerging countries may also be numbered. It's been long overdue.
Goldman Sachs, the Wall Street powerhouse that gave the world the catchy, marketable acronym 14 years ago, has fittingly put the last nails in the coffin. Its asset-management arm quietly closed its shrinking BRIC equity fund in September and shifted the remaining assets into a broader fund covering all emerging markets.
The move followed several years of losses and heavy withdrawals by worried investors, a fate shared by other emerging funds with the same theme. By the end, the nine-year-old Goldman fund's assets had plunged nearly 90 per cent to a mere $98-million (U.S.) from their high in 2010.
The firm declared in a regulatory filing in September that it doesn't see "significant asset growth in the foreseeable future."
It's hard to disagree with that. Any fund with an inordinate focus on recession-racked Russia and Brazil and a slowing China is bound to be in troubled waters. Then there's stagnant South Africa, a latecomer added to the group in 2010 – turning BRICs into BRICS – to pretend that the little club speaks for the entire emerging world. That only leaves India, which benefits most from a drop in oil prices and is growing at a decent clip of about 7 per cent annually. But it remains beset by a host of investor-deterring problems of its own.
So the BRIC funds have been stuck with a barn full of turkeys, while a small handful of stronger emerging players such as Mexico and South Korea lie outside their scope.
BRIC funds have posted net outflows every year since 2011, topped by the flight of $2-billion in 2014 and another $1.4-billion so far this year, according to EPFR Global, which tracks international fund flows.
When Jim O'Neill, then Goldman's chief global economist, coined the term, he was attempting to highlight a particular theme that many investors were missing in the wake of the Internet-stock collapse: the rapid growth of major emerging economies with the greatest potential to surpass the West and lead the world economic tables by the middle of this century. No doubt, it didn't hurt Goldman's efforts to market its investment banking expertise in the markets it was touting.
But after a strong first decade or so, when the BRICs exceeded even Mr. O'Neill's expectations, thanks in no small measure to China's stunning growth, the investment story began to fall apart.
"The BRIC acronym didn't make any sense in the first place because you just randomly group four countries which are completely different," Xavier Hovasse, an emerging market fund manager with Carmignac Gestion in Paris, told Bloomberg News. "If you restrict your investment universe too much, it's more difficult to perform. I am not surprised that those funds are collapsing."
For that matter, things aren't going all that well for much of the rest of the emerging world either, as investors flock to the safe haven of U.S. assets. Countries that have grown increasingly reliant on exports to China, including Chile, Indonesia, Thailand, Vietnam and Malaysia, have taken a beating.
One concern is the massive corporate debt piled up by corporations in these and other emerging countries, much of it denominated in U.S. dollars. As the greenback strengthens and emerging-market currencies weaken further as a result higher U.S. interest rates and the continuing flight to quality, the International Monetary Fund warns there will be a rash of corporate failures.
This matters to the rest of us. "The issues facing emerging markets are deep-rooted and unlikely to disappear soon. Consequently, their drag on global growth, trade and inflation will likely persist," Royal Bank of Scotland economists warn in a report.
Financial stability could also be at risk. "All the while, emerging markets will likely remain a source of financial vulnerability. Periodic bouts of financial stress like those seen in recent months should be considered the norm," the RBS report says.
Under the circumstances, steering clear of the overhyped BRICS and a big chunk of the rest of the emerging world seems eminently sensible.