Do you remember those BRIC group of nations?
It was a hyped-up investment theme during the last commodity boom of the early 2000s.
This catchy abbreviation caught investor attention and was built on the idea that major emerging economies were set to push millions of citizens into the middle-class category.
Creating what would become a once-in-a-century boom.
As it turned out, this hypothesis was largely accurate…well partly anyway.
According to the Centre for Strategic and International Studies, in the year 2000, around 3% of China’s population was considered middle class.
But less than two decades later, a staggering 50% or 707 million people had entered the middle-income bracket.
It would become the most rapid socio-economic rise in global history.
Yet what happened to the rest of the BRIC nations during that era?
Russia, India, and Brazil failed to come anywhere close to China’s incredible growth.
India was perhaps the biggest letdown of all.
Some blame a chaotic political system that could never streamline growth in the way a communist-led Chinese authority was able to achieve.
The BRIC investment theme has long since gathered dust in the economic archives.
Growth is squarely focused on China…it’s been that way for almost two decades.
However, right now, the long-held view is shaky…the People’s Bank of China (PBOC) continues to juggle deflationary threats and a declining property market.
But burned from experiences of the past, investors are perhaps slow to accept the idea that other nations could take the reigns as major growth economies.
So, what’s the catalyst that might see new emerging nations repeat the China growth story?
Geopolitical tensions re-awaken the BRIC investment theme
You’re no doubt aware of the growing rift between China and the West.
The fallout is already having consequences for trade and supply chains…
Just this month, China announced restrictions on gallium and germanium exports, key ingredients in computer chips and other high-end tech devices — a reaction to earlier trade restrictions from the US.
The Middle Kingdom hit back in the best way it could…through its dominance of critical metal supply.
Perhaps a little shaken from the consequences, US officials offered no comment on China’s counterpunch.
The situation is set to deepen as each side seeks to throw a harder blow in the geopolitical boxing ring.
That’s why Western-owned manufacturers are growing nervous about their Chinese-based operations.
iPhones, Prada handbags, LEGO blocks….just a tiny selection of the thousands of brands owned by the West but whose goods are produced in China.
Enter emerging economies (ex-China)…
If we had one global economic catalyst that would bring new nations into their very own ‘China moment’, then this is it.
India, Indonesia, Vietnam and Mexico alone may not spark the gigantean middle-class migration of the early 2000s, yet combined offer a powerful economic force.
These are the regions attracting multinational companies looking to divest their China exposure.
But it seems some investors are already waking up to the opportunities…
Mexico’s equity market has surprised many, soaring into new-all-time highs this year.
In fact, the Nasdaq Small-Cap Mexico Index has gained a staggering 214% from its 2020 COVID lows.
As you can see below, the index has rocketed past its previous all-time highs.
But if we distil the situation between China and the West, Mexico’s stunning growth makes sense.
You see, this emerging nation has one key advantage…it’s located on the doorstep of the world’s largest economy.
The US…the headquarters for multi-billion tech and manufacturing giants…the very companies that enabled China to become what it is today.
Except these giants are now changing gears and reversing out of China.
Mexico appears to be one of the early beneficiaries of this trend.
In early 2023, Tesla announced that it would build its next generation EVs through a newly built gigafactory in the land of sombreros and tequilas.
It’s the key strategy behind the company’s goal to sell affordable $25,000 EVs, thus breaking into the mass market.
No doubt, Tesla is just one of numerous US manufacturing giants set to make the journey back to the Americas.
Yet, Mexico alone won’t be able to absorb this enormous China exodus.
India will play its role too…it’s perhaps one of the reasons this nation of more than 1.4 billion people was one of the fastest-growing copper markets in 2022.
In fact, India was one of the first nations to resume copper imports to pre-COVID levels.
Such is the demand from manufacturing and building development.
According to Reuters, rising copper consumption is being driven by the property sector, home appliance makers and green energy transition industries such as electric vehicles, solar and wind power plants.
In other words, the industries that helped shape China’s emergence into an economic powerhouse.
Yet India’s copper imports still pale in comparison to China which accounts for around 50% of global demand.
However, this is an emerging trend…one that is perhaps still in its very early stages.
Employment, wealth, and construction are set to flood the emerging manufacturing frontiers as they absorb the China exodus.
The stage is set…India, South-East Asia, and Mexico are all bracing to take market share away from the world’s manufacturing epicentre.
It’s time to dust off that old BRIC investment handbook and revisit this new EMERGING trend.
Editor, Diggers and Drillers