The acronym was “never justifiable”. Each of the four countries have fundamental economic differences that precluded them from being grouped together, said Gardiner, in a recent webcast.
China and India are the only two of the BRIC quartet “with the most compelling long-term investment case. Structural economic growth is stronger in the two Asian countries and the governments are involved in serious economic reform efforts. The same cannot be said for Brazil and Russia, which also rely more on oil production to power the economy.
His view tracks with the originator of the BRIC acronym (in 2001), Goldman Sachs. The firm’s asset management unit recently integrated its standalone BRIC fund into an emerging markets vehicle because it lacked asset growth, according to a Reuters report.
China is slowing, but not collapsing, said Gardiner. However, Rothschild’s advice is to stay out of A-shares. “We can’t be positive on the A-share market. It’s not a market you can take money out of in a hurry and that’s important to international investors.”
He added that A-shares look expensive, even though they are down 20% from a few weeks ago. The price-to-book of companies included in The MSCI China index look better than A-shares.
Gardiner expects the RMB to be put into the IMF’s Special Drawing Rights currency basket, a decision which is likely to happen this month. However, the SDR inclusion is “mainly symbolic.
“It’s not going to galvanize the international investor attitude toward A-shares. It’s a positive development, but more of a long-term geo-political development.”
The title of Gardiner’s presentation was “Global economy: changing locomotives”. He argued that momentum is shifting from the emerging to the developed world.
In equities, the firm prefers the US and Eurozone. Asia’s markets may be outperforming other emerging markets, but they are underperforming the US and Europe “and not yet compellingly cheap”.
The firm is advising Asian investors to use market volatility to build out diversified portfolios “outside as well as inside Asia”.