The Allianz RCM BRIC Stars Fund was launched in 2006 with the objective of producing long term growth from investment in the BRIC countries – Brazil, Russia, India and China. The term BRICs was first coined by Goldman Sachs in 2002, and those countries have since proved to be the outriders of growth in the wider emerging markets.
We look at the Allianz RCM BRIC Stars Fund expectations for 2011.
The fund is available through the Fair Investment ISA and Investment Account and Fair Investment SIPP at no initial charge. See Allianz RCM BRIC Stars Fund for more information.
The economic outlook
While the BRICs were a significant driver of overall global economic growth in 2010, some of the smaller emerging markets did perform better.
Manager of the Allianz RCM BRIC Stars Fund. Michael Konstantinov puts strong stock market performances in countries such as Thailand, Peru and Chile down to some specific conditions.
“2010 was not necessarily the year of the BRICs especially in the emerging markets universe. This is not unprecedented; however, I think it’s important to remind ourselves of what some of the drivers were for performance in some of these countries,” he says.
These ‘drivers’ include receding political concerns in Thailand leading to renewed investor interest in the country which has previously lagged behind other markets, and in Chile a shift of assets into equities due to low interest rates, causing equity market appreciation.
For the BRICs, Konstantinov believes they remain the dominant force amongst other emerging markets, notably when measured by the number and size of listed companies in these countries and the expected level of Gross Domestic Product (GDP) growth.
“It is impressive how the BRIC countries have performed, despite the volatility that we have seen in recent years,” Konstantinov says, adding that the risk return profile for investors in these markets has also improved over the years.
A long term view of stock market performance, taken from 1999, shows the MSCI BRIC index has outperformed an index of emerging market stocks excluding BRIC countries, and UK and US indices. This growth really picked up in 2003, with a sharp recovery following significant falls in the index during 2008.
Konstantinov says the fund is tilted towards larger companies. “BRIC large caps are trading at a discount to other emerging market large caps...I think that will be an important factor for performance this year,” he adds.
The fund’s holdings include the Brazilian mining firm Vale which has benefited from rises in demand for metals at the end of 2010, the Russian bank Sberbank which has a vast network of 20,000 branches in the country, and Infosys.
Konstantinov says the Indian firm Infosys has developed into a leading IT services provider and ‘global player in that area’, with a very profitable business model and growing workforce.
“BRICS are back to a more sustainable growth pattern and now we have the unique opportunity to buy at highly attractive valuations, probably the most attractive valuations we have seen in past years,” he adds.
One of the highest profile issues for emerging markets is inflation which has been largely forced up by the rising cost of food.
Konstantinov expects there to be a ‘supply response’ to this rise in food prices. “I do expect a higher yield in crops, if so food price inflation will subside in the second quarter of this year.”
Another concern for investors in emerging markets is corruption, which Konstantinov says is an issue in all four markets. The team behind the fund look at corruption on a company specific basis, analysing individual firms to identify concerns in this area. He does believe the fact that recent corruption scandals in India have been dealt with in a judicial process to be an encouraging sign.
As well as the Allianz RCM BRIC Stars Fund, the BRIC Equity team, led by Michael Konstantinov, also manage the Allianz RCM Brazil Fund.
Both funds are available through the Fair Investment ISA and Investment Account and the Fair Investment SIPP.
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