Since Jim O’Neil, of Goldman Sachs came up with BRIC, an acronym to group together Brazil, Russia, India and China as the world's emerging economic capitals, fund managers have been looking for another acronym.
It’s a lot more than just searching for an acronym; it’s about finding the next return on your investment. As much as investors want a piece of the pie from the countries involved in these acronyms they are weary of lumping together different developing countries.
Since retiring O’Neil is back in the lime light with another acronym. This time it’s “MINT” (Mexico, Indonesia, Nigeria, and Turkey). This is not the first time we are hearing about the MINT countries; back in 2001, Fidelity Fund managers, a Boston-based asset management firm, originally coined the term and now it’s been popularised by O’Neil.
Between the BRIC and the MINT countries, we have also had the CIVETS, which were linked by Robert Ward, of the Economist Intelligence Unit. These countries included Colombia, Indonesia, Vietnam, Egypt and Turkey but the CIVETS never really got off the ground. Unlike the BRIC countries, the CIVETS although have made great progress, still have portions of their societies which are poor and not so well educated. Moreover, the main concern for potential investors was political stability.
Now the MINTs according to O’ Neil will be the second generation of emerging market darlings. The MINTs share some common features. They all have big and growing populations with abundant supplies of young workers.
According to Fidelity, Indonesia's long-term growth is supported by favourable demographics, rising disposable incomes and pro-growth government policy, while Mexico benefits from substantial US investment, competitive labour costs and surging levels of exports.
“Q3 growth for Emerging Market Asia exceeded our expectations. The long-term outlook for countries such as Indonesia and the Philippines is supported by a powerful mix of favourable demographic factors, including quite large populations that are dominated by young people whose disposable incomes are rising,” said David Fernandez, Head of FICC Research, Asia Pacific at Barclays.
Three of the MINTs including Mexico, Indonesia and Nigeria are also commodity producers compared to two of the BRICs that were Brazil and Russia that if developed properly could be beneficial said O'Neill.
Mexico and Nigeria in particular are reforming their energy markets in order to accelerate growth. Nigeria's weighting in the MSCI frontiers index should increase to 20 per cent from 14 per cent following an upgrade of the United Arab Emirates and Qatar in May, ensuring it attracts more attention from both dedicated emerging market and larger global investors.
Sven Richter, head of frontier markets at Renaissance Asset Managers said, "Some of these markets did very well last year. They may go more slowly or take a break. I am not predicting they will go down - they should rise at a slower rate."
When Fidelity initially coined the term “MINT”, they acknowledged that finding the next group of countries that can compare with BRICs in terms of scale is an almost impossible task but the MINTs may just have the potential to be as rewarding for investors over the next ten years as BRICs have been in the past ten.
Turkey used to be one of the most popular and best-performing emerging markets and investors expected it to be on the investor agenda. But several things have since gone pear-shaped.
In November, the IMF put out a report on Turkey saying that it, “can only sustain high growth at the expense of growing external imbalances.” It called for a huge 250 basis point rate hike in the key policy rate. Turkey’s inflation rate is close to 8 per cent, and it also faces deficit problems and a weakening currency. There are some who believe that there is a storm brewing in Turkey, and while not everyone shares that view, it’s worth quoting Renaissance again on the relative merits of these MINT economies: “We like Nigeria for the first quarter of 2014. We’re not at all sure about Turkey.”
“It is difficult to get excited about the MINT concept,” said Kunal Ghosh, manager of the Allianz BRIC Stars fund. He believes that the number of consumers in the MINT countries is a fraction of what is offered by the BRICs. Therefore, you may get a short-term high beta performance because of the relatively small economies of countries like Nigeria but it is not something which will be more sustainable like India or China.
Fund managers have called for investors to focus on the qualities of individual emerging markets rather than viewing them in blocs or as a single asset class.
For now it might take time until MINT’s fly off the shelf.