The BRICS are dead! Long live the TICKs. The BRICs acronym was designed by Goldman Sachs economist Jim O’Neil in 2001 to conceptualize the Brazil, Russia, India, China superpowers of the emerging world. South Africa then attached itself to the team, adding the S to the name a few years later. With the commodity boom from 2000 – 2012 now a fast fading memory and deepening recessions in Russia, Brazil and possibly South Africa, BRICS have literally nearly disappeared from the investment landscape.
According to a Financial Times article last week, in their place emerging market fund managers appear to have stumbled upon a potential replacement – the TICKS, with tech-heavy Taiwan and South Korea elbowing aside the commodity superpowers. Aside from the cool acronym, the realignment tells us as much about the changing world and Emerging Markets, with services, particularly technology, coming to the forefront of investors’ agendas.
Facebook, Amazon, Netflix and Google (FANG – another acronym!) have dominated the S&P500 for the past 12 months, so I guess the EM world is no different. In fact, if South Africa can attach themselves to a TICK(s), then its largest and most successful stock is Naspers (owner of 34% of Chinese tech heavyweight Tencent), an emerging market internet and e-commerce success story.
Samsung is an obvious reason for Korea’s inclusion in TICKs, while Tencent, Alibaba and Baidu all influence why China stays involved. Taiwan’s market index, meanwhile, is heavily weighted in semiconductor stocks.
As the Bloomberg chart above shows, rather than a surge in the TICKs’ markets, it’s actually a case of which has fallen the least since 2011. As an asset allocation business, we would naturally conclude that these trends are cyclical and all the TICKs are beneficiaries of cheaper commodities, whilst the dropped BRS are currently in a very difficult phase of the commodity cycle. Tech stocks are simply the beneficiaries of more buyers than sellers at present.
To some extent, mutual fund buying of TICKs and EM tech stocks reflects their rising weightings in the MSCI EM Index: the four countries’ combined weighting now represents 62.4% of that benchmark. Now, most EM funds are now overweight Taiwan – up significantly since 2013 – and shunning resources as if they have the plague. We have, of course, seen this before. Back in 2000, at the peak of the 2000 tech bubble and before the commodity super-cycle, Taiwan was the largest country in the MSCI EM index. Meanwhile Brazil which led that commodity charge has seen its Index weighting fall from a peak of 17.6% in June 2008 to just 5.2% today.
Notwithstanding all this, our research shows all Emerging Markets in general are very much correlated, when priced in a common currency. Why then are they all behaving very similarly to commodities at present?
Goodbye BRICS, Hello TICKs
