26 October 2016
Investment bankers are actively searching for countries that are good to invest in amid the economic slowdown in BRICS. Photo: HKEJ
Investment bankers are actively searching for countries that are good to invest in amid the economic slowdown in BRICS. Photo: HKEJ

How fragile is the “Fragile Five”?

The investment banking sector often likes to categorize countries according to certain specific conditions and then give them a catchy name. Among these names, the best-known is probably “BRIC”, a name coined in 2001 by Jim O’Neill, an economic analyst with Goldman Sachs. Later, South Africa was added to the list and “BRIC” became “BRICS”.

New terms referring to countries of different economic and financial conditions have continued to emerge over the past decade. “MINT” and “N11”, for example, refer to some emerging markets. Since these new terms are mostly coined by investment bankers and economic analysts rather than academics, most of them don’t follow rigorous academic logic, and sometimes even contradict one another.

Lately, the most popular term has got to be the “Fragile Five”, which refers to Brazil, India, Indonesia, Turkey and South Africa, or “BIITS”.

The term was first coined in 2013 by some analysts. According to the New York Times, “BIITS” are at risk because they rely too much on volatile foreign investment to sustain their economic growth. However, these countries are often not as fragile as many people think.

Ruchir Sharma, an investment manager with Morgan Stanley, can offer us some insight into the true potential of these seemingly fragile countries.

In his book “Breakout Nations: In Pursuit of the Next Economic Miracles”, Sharma explores which countries are good to invest in amid the economic slowdown in “BRICS” countries.

He recommends Turkey in particular, mainly because it has a relatively young population, a sound economic system, as well as close trade and tourism relations with the Middle East. The country has a lot of potential for growth.

Apart from Turkey, Sharma also recommends South Korea, and cites its three main advantages: strong exports, foreign investment friendly environment and a 30 percent share in the global IT market.

Last year, Jim O’Neill introduced a new term: “MINT”, which includes Mexico, Indonesia, Nigeria and Turkey, and said they are all populous countries with a lot of potential for further growth.

In other words, while Turkey and Indonesia are rated by some as “fragile”, they are also among the most sought after emerging markets on earth.

Mexico is another example of contrasting views.

In August, investment bankers redefined Fragile Five, with Colombia and Mexico replacing India and Brazil. Both new members have large current account deficit and are suffering from the slide of oil prices.

In the meantime, there is the so-called “Troubled Ten”, which includes South Africa, Brazil, Thailand, Singapore, Chile, Colombia, Russia, South Korea, Peru and Taiwan (of course it might be deemed politically incorrect by Beijing as it has always regarded Taiwan as part of China).

There is one thing in common among the “Troubled Ten”: they all rely heavily on exports to China. For example, the Chinese market accounts for 37 percent of South Africa’s exports and 30 percent of South Korea.

Depreciation of the renminbi is likely to hurt these countries. So, it’s obvious where troubles of the “Troubled Ten” really originate.

This article appeared in the Hong Kong Economic Journal on Sept. 22.

Translation by Alan Lee

[Chinese version 中文版]

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Associate professor and director of Global Studies Programme, Faculty of Social Science, at the Chinese University of Hong Kong; Lead Writer (Global) at the Hong Kong Economic Journal

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