In the financial world, "BRIC" typically stands for "Brazil, Russia, India, China," a usage first coined by Jim O'Neil in 2001.
There’s a sentimental place in my heart for the BRIC group because I’ve lived in a couple of those countries and feel I “know” them, at least to a small degree. I was a Peace Corps volunteer in Russia awhile back, and I’ve spent quite a bit of time in China between then and now. Additionally, my brother’s wife is from India - which has helped provide me with exposure to that dynamic country.
Last, but not least, my nephew recently named his pet crayfish "Brick," which basically makes him the new mascot of the region - at least in my mind.
Getting back to the point, a lot has changed since the term “BRIC” was first coined. China now has the second-largest economy in the world, which would theoretically mean it has "emerged," and is no longer "emerging."
On the other end of the spectrum, the Russian economy has stagnated in recent memory. After drawing unwanted attention and associated economic sanctions due to military activity in Ukraine and Syria, the economic prospects of the Russian Federation appear somewhat challenging in the foreseeable future.
Of the four, Brazil and India may still most closely resemble the type of future economic potential that was alluded to when the “BRIC” acronym first gained worldwide attention. And while the planet’s economic landscape is certainly of interest, a recent episode of Market Measures tackles the BRIC from a different perspective - and one may be more relevant to your daily trading activities.
Specifically, the Market Measures team examines the ETFs associated with the four countries in BRIC, and analyzes some interesting historical trading data. Information which may help broaden your own portfolio’s horizons (depending on your own unique strategy and risk profile).
As you can see in the graphic below, while the BRIC is traditionally believed to be the center of “emerging” market activity, actual BRIC exposure in the MSCI Emerging Market ETF (EEM) is smaller than you might think:
As stated in the slide above, roughly 57% of the holdings in EEM are concentrated in China, South Korea, and Taiwan. And if you were in China (which believes Taiwan to be a part of their territory), then you could say 57% of EEM is concentrated in only two countries - China and South Korea.
That’s quite a revelation, as most traders/investors dealing may not be perfectly aware that their exposure EEM is so concentrated, and far less "emerging" than one might think.
Later in the show, the hosts of Market Measures identify the four regional ETFs of BRIC, as highlighted in the bullet points below:
The slides below show the performance of the above ETFs since 2013, as well as some relevant trading data for each:
What we can see in the first slide is that equities in Brazil and Russia have underperformed in recent years, especially as compared to China and India (and the SPY for that matter).
Another important piece of information to consider is the “open interest” column on the second slide. In this case, it's Russia and India that stick out, as both possess relatively anemic liquidity - the type that tastytraders often avoid.
In sum, the above tells us that from an options trading standpoint, the ETFs for Brazil and China at least qualify for consideration based on open interest (i.e. liquidity). Likewise, these are two ETFs that have experienced diverging performance in recent years - despite the upward trend in SPY over the same period.
Because we often seek to diversify our volatility portfolios with underlyings that with low or negative correlation, the above information suggests that EWZ and FXI at minimum deserve further consideration if/when attractive opportunities materialize - potentially even for a pairs trade.
We look forward to hearing from you!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
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