By now, most investors should be familiar with the BRICs — Brazil, Russia, India and China. For nearly a decade, the term BRIC has been synonymous with emerging market investment opportunity.
That’s because these countries have proven they can outpace the field in terms of both economic growth and potential upside for investors. And while not all BRICs are created equal — China being the best and Russia being the worst — the grouping of these countries together as areas of burgeoning investment opportunity has largely been proven accurate.
Recently, the man who originally coined the initial term BRICs — a former colleague from my days at Goldman Sachs (NYSE: GS) — has come up with a new acronym designating what he thinks are the next great emerging market opportunities. CIVETS stands for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
Each one of these countries has its positives. All of them boast a large, young and growing population, and each can honestly say they have a diverse economy. Politically speaking, each of the CIVETS are relatively stable, but remember that the term “stable” is a little more tenuous when discussing emerging market countries. Yet despite the positives, when it comes to each of these countries, you have to drill down deeper to find the gems.
As with countries that make up BRIC, it is unwise to lump vastly different countries such as South Africa and Colombia into one basket. Each economy has its strengths and weaknesses.
In general, I tend to focus more on Asian economies because that is where the biggest opportunities exist. When it comes to emerging market investing, I would especially focus on countries with abundant natural resources. These countries benefit as the living standards improve for 80% of the world’s population that live in these developing or under-developed economies.
Although there may be long-term investable opportunities in each of the CIVETS, I am especially concerned with investable opportunities taking place in the shorter term.
So, while these countries do have great growth prospects over the next decade or so, I prefer to focus my attention, for now, on the best immediate opportunities for sizeable profits within the next six months.
Overall, I think the hands-down best and most timely CIVETS play right now is Indonesia.
After emerging as the third fastest-growing member of the G20 in 2009, Indonesia has been a strong performer. Last year Indonesia expanded at an impressive rate of 4.4% — especially considering the economic landscape.
Like China and India, Indonesia is also expanding rapidly, and investment growth in 2009 was boosted by infrastructure spending and high commodity prices.
I’ve had Indonesia on my radar for some time, as the country is replete with natural resources such as coal, copper, gold, natural gas, oil, silver and tin. It’s also located much closer to its biggest commodity customers — China and India — than other commodity-rich countries such as Australia and Brazil.
That’s why I’m now mending the Market Vectors Indonesia Index ETF (NYSE: IDX) in my Asia Edge newsletter. So far in 2010, IDX is up nearly 24%, a stellar gain compared to the performance of just about any other emerging stock market. And though the upside in IDX has been very strong this year, I think there is still much more upside to be had over the next several months.
So, what do you get when you own IDX? Well, this ETF seeks investment results that correspond to the performance of the Indonesia equity market. Basically, with IDX you get the best companies in Indonesia, and you get them in one basket that’s denominated in U.S. dollars and that trades on the New York Stock Exchange.
One thing I really like about IDX is its sector breakdown. As of last quarter, the ETF had a 25.4% exposure to financials, a 15.7% exposure to materials, a 12.5% exposure to the consumer sector and another 12.5% exposure to the energy space. This breakdown in the sectors takes full advantage of the aforementioned strength of the country’s economy, natural resources and growing personal income.
As of this writing, Robert Hsu was recommending the IDX ETF to subscribers of his Asia Edge newsletter.
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