The four BRIC countries continue to grow in stature, but India looks the safest to invest in.
Until the recession popped the balloon, 'BRIC'-based investment funds and ETFs were all the rage -- with 'BRIC', of course, standing for Brazil, Russia, India and China. It wasn't a logic to which I subscribed.
Russia? With its dubious oligarchs, mafia and opaque business practices? No thanks. Look no further than the mess BP (LSE: BP) got into. China? Again, I'm not persuaded that the investment environment there is yet mature enough for me to invest my hard-earned cash. Brazil? Now you're talking -- although on closer inspection, the Brazil story boils down to worryingly few companies and sectors.
For me, India ticks many more boxes for investors wanting exposure to country-specific emerging markets. And I'm not alone: a number of ETFs and funds have sprung up to capitalise on investors' desire to profit from the fast-growing and fast-globalising Indian economy.
Downsides
That said, as with the other BRIC economies, there are plenty of downsides. Still somewhat hedged in by rules, bureaucracy and restraints, India's growth has substantially lagged China's, and for the foreseeable future will in all probability continue to do so.
Corporate governance is another problem. Earlier this year Indian software giant Satyam messily imploded amid accusations of fraud and larceny, and dynasties and families still dominate too many of India's businesses for my taste. And if sprawling conglomerates like Tata are no longer seen as a suitable business model in the West, why will they fare any better in India?
Corporate debt and leverage is a concern, too. India's quoted businesses are highly geared, carrying a significant amount of debt. Not a problem, perhaps, in good times -- but today's borrowing environment is far from good.
Indian promise
Despite these concerns, India has a lot of good things going for it. The country's stock market leapt 17% on May 18th, for instance, after the Congress Party's resounding victory in the country's general election opened the door to further economic reform.
And today comes news that India seems, like China, to be shrugging off the global recession. The Indian economy grew 5.8% in the first three months of the year, a year-on-year result that was better than analysts had expected. Growth -- and GDP -- are down on last year overall, but the tide seems to have turned.
And that economy is changing in nature. The past ten years has been an export-led success story: Indian companies selling outsourcing services, software, and industrial products to companies in the West. That will continue, but India's rising consumer class will generate vastly more economic wealth. Figures put India's likely middle class at 580 million by 2025 -- more than the population of Europe.
Buying into India
Consequently, I'm bullish on India -- bullish enough to place a chunk of my own cash there.
There are various ways of doing this. Investment funds are a popular choice, if you're prepared to pay the costs involved. As I've argued here, specialist funds like India-only funds are an example of where it may well be worth paying for a fund manager's insights and on-the-ground research. I counted 17 fund managers offering Indian investment funds -- among them companies such as Jupiter, Fidelity, HSBC, F&C, and Neptune.
ETFs are another option, and have lower charges. iShares offer an India-only ETF, for instance, the iShares MSCI India (INDI); as does rival Lyxor, with its Lyxor India S&P CNX NIFTY (LSE: LNFT).
For those of a more nervous disposition, another option is to invest in funds -- or ETFs -- that are only partly exposed to India. There are a huge number of Asian-oriented investment trusts, eTFs, investment funds and index trackers that have a portion of their assets in India, with the balance being spread over the economies of Singapore, South Korea, and Hong Kong.
Check before you buy, though -- some have a worthwhile exposure to India, but others don't, preferring to put their money in other Asian economies. As the saying goes, "you pays your money, and you takes your choice."
More on foreign funds:
Malcolm owns shares in BP.
