Ten years after Brazil, Russia, India and China were dubbed the BRICs, any early mover advantage for investing in them has long gone.But lovers of acronyms will be relieved to learn the latest investment theme claiming to steal a march on emerging markets also has a catchy name.
The CIVETS group of countries—Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa—are being touted as the next generation of tiger economies, even if they are named after a rather more shy and retiring feline. They all have large, young populations, with an average age of 27. This, or so the theory goes, means the countries that make up CIVETS will benefit from fast-rising domestic consumption. They are also all fast-growing, relatively diverse economies, which means, unlike the BRICs, they should be less heavily dependent on external demand.
HSBC Global Asset Management launched the first fund specifically targeting the group of countries, its GIF CIVETS fund, in May. HSBC points to rising levels of foreign direct investment across the CIVETS grouping, low levels of public debt—with the exception of Turkey—and sovereign credit ratings improving towards investment grade. Critics point out that CIVETS countries have nothing in common beyond their youthful populations. Furthermore, liquidity and corporate governance are patchy and political risk remains a factor, particularly in Egypt.
"This sounds like a gimmick to me," says Darius McDermott, investment expert at Chelsea Financial Services. "What does Egypt have in common with Vietnam? At least the BRIC countries were the four biggest emerging economies so there was some rationale for grouping them together. A general emerging markets fund would be a less risky way to get similar exposure."
But early numbers suggest that while Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa make strange bedfellows, CIVETS investors could prosper. Although it was only established in 2007, the S&P CIVETS 60 index is ahead of the S&P BRIC 40 and S&P Emerging BMI over one and three years. While investing in acronyms is not always the most sensible approach, it seems the CIVETS might just pay off.
Colombia
Colombia is emerging as an attractive destination for investors as it works to distance itself from its troubled past. Elected in 2010, President Juan Manuel Santos has continued the center-right policies of former President Alvaro Uribe, prioritizing security and attracting overseas investors.
Improved security measures have led to a 90% fall in kidnappings and a 46% cut in the murder rate over the last decade, which has helped per capita gross domestic product to double since 2002. Meanwhile, Colombia's sovereign debt was promoted to investment grade by all three ratings agencies this year.
With a population of 46 million, Colombia has substantial oil, coal and natural gas deposits. Other industries include textiles, coffee, nickel and emeralds.
Foreign direct investment stood at $6.8 billion (€4.8 billion) in 2010, with the U.S. its principal partner.
HSBC Global Asset Management sees potential in Bancolombia, the country's largest private bank, which has turned in a return on equity over 19% for each of the last eight years.
Wall Street Journal.
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