After successfully introducing the acronym BRIC (Brazil, Russia, India, China, or BRICS including South Africa) in 2001, Jim O'Neill, chairman of Goldman Sachs Asset Management, a company that manages global investment funds, is now introducing a new acronym called MIST (Mexico, Indonesia, South Korea, Turkey).
The MIST countries are the four largest markets in the Goldman Sachs Next 11 Equity Fund. MIST accounts for roughly 73 percent of GDP of last year's Next 11. The Next 11 includes Bangladesh, Egypt, Nigeria, Pakistan, the Philippines, Vietnam and Iran. Goldman Sachs did not invest funds in Iran because the market is not open to foreign investors.
In February 2011, Goldman Sachs investments opened in those 10 countries, which are considered by O'Neill to be the most rapidly evolving markets.
"We see a steady inflow of funds into the Next 11 every week. They have not been affected by the disappointment of the U.S. market and obviously the European market, as well as all the disappointments in some of the BRICS markets," said O'Neill on Bloomberg.
The Goldman Sachs investment fund for the MIST countries rose 12 percent in the past year while markets in the BRICS countries rose by only 1.5 percent. The MIST economies grew two-fold over a 10 year period and surpassed the German economy in 2011.
In the last two years the growth of the Mexican economy has surpassed Brazil’s, which is the largest economy in Latin America. Domestic spending and investments in Indonesia have boosted the economy there, which is the largest in Southeast Asia. Indonesia grew by 6.37% in the second quarter of this year. This came as a surprise to economists who had previously predicted that Indonesia's economic growth would slow.
Buy Stocks in Indonesia
Paul Christopher, an American broker, has advised investors to sell their stocks in the BRIC during the first half of the year and recommended buying shares in Indonesia because the growth there has surpassed 6 percent. This is considered to be a more attractive opportunity for global investors.
"We’ve seen a rotation of leadership based on the level of economic growth," said Christopher, a strategist at Wells Fargo Advisors, the third largest brokerage firm in the US and has $1.2 trillion in client assets.
The Indonesian government plans to develop its infrastructure, such as railways, airports and seaports, power plants, and water supplies, among others things, indicative of economic strength. The Anggaran Pendapatan Belanja Negara state funds amount to nearly 200 trillion IDR and the Badan Usaha Milik Negara state funds are around 900 trillion IDR.
Fitch Ratings and Moody's Investors Service have raised Indonesia's debt rating to investment grade in the last eight months with Fitch increasing it to BBB in December and Moody's lifting it to a BAA3 rating in January.
Besides Indonesia, Christopher has also recommended buying shares in South Korea, which he said would benefit from its increased exports due to China's rising domestic spending.
MIST Still Lost
In terms of population and GDP, the MIST nations do not approach that of the BRICS nations. The total population of the MIST countries is less than 500 million people, compared with about 2.9 billion people in the BRICS countries. The total GDP for the MIST countries last year was $3.9 trillion. This amounts to less than one-third of the total GDP of the BRICS, which totaled $13.5 trillion. China's GDP alone was $7.3 trillion.
Equity investment funds in the MIST countries are not considered to be immune from the concerns over global growth. Investors will have added funds of $104 million in Turkey and $123 million in Indonesia by August 1 of this year. In the same year, investors will also extract $1.33 billion from South Korea and $115 million from Mexico.
O'Neill estimates that the BRICS countries will grow by an average of roughly 6.5 percent per year through 2020, compared with 5.5 percent for the Next 11. This is an important reason as to why O’Neill refused the request of investors to focus only on the MIST countries.
Political Issues
O'Neill has also stated that other issues for concern are the ones presented by nations' political problems. The economic slowdown of India, which boasts the second largest population in the world, is related to its challenges in political leadership. O'Neill stated that there was no effective leadership in India and, therefore, the S & P has warned that it may be downgraded unless the political decision-making obstacles can be overcome.
There have also been episodes of mass power outages in India. On July 31, 640 million people in India were left without power and the next day another power outage affected another 360 million people, just highlighting some of the obstacles the countries face with regards to basic infrastructure and management.
However, unlike India, Indonesia is enjoying a period of strong growth, and the government has been able to tame inflation during this time.
"We see corporate growth continuing and increasing incomes in Indonesia," said Bharat Joshi, an assistant manager of Indonesian investments with Aberdeen.
McKinsey & Co. predicted that Indonesia would become the 7th largest country in the world and that there would be an increase of the middle class by 2030 by an extra 90 million people. Currently, the middle class sits at around 45 million and is ranked 16th in the world.
These are good indications that Indonesia will enjoy sustained growth in the coming years, making it a larger player in global economics and, perhaps, politics.
