The BRICS concept, based on the belief that the quartet of Brazil, Russia, India and China would power an unstoppable wave of emerging markets-led economic growth, gripped the firmament for more than a decade after it was conjured into existence by Jim O’Neil of Goldman Sachs in 2001.
Now, the TICKs are in vogue, as Taiwan and South Korea replace commodity heavy economies. TICK is an acronym for the economies of Taiwan, India, China, and Korea. The technology dominated Taiwan and South Korea appeal to the new wave of consumers and software that dominates the markets. Brazil and Russia are in full-blown recessions.
According to a January 28, 2016 Financial Times article, 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.
According to the Financial Times, over the past decade Brazil and Russia led economic growth in emerging markets. However, plummeting commodity prices have resulted in deepening recessions in the two countries. Reacting to the change, fund managers are eyeing tech-heavy Korea and Taiwan as replacements.
According to data provided by Copley Fund Research, a company that tracks some 120 emerging market funds that have combined assets of around USD 230 billion, the average emerging market equity fund now has around a 54 percent weight in TICKs. This is a rise from the 40 percent seen in April 2013. As of last December, 63 percent of funds had at least 50 percent of their emerging market assets invested in TICKs. Only 10 percent had over-exposure in the BRICs.
Recently, Uday Kotak, the executive vice-chairman of Kotak Mahindra Bank, said that the BRICS story was over and that India should look for glory alone rather than continue as part of this group.
As the shift in assets moves away from industrial production towards technology, money managers need to determine the long-term viability of the change. According to TopHedgeFunds, for many, the new and exciting technological companies that are arising out of Southeast Asia represent a shift in consumer mindset. There is a structural change to Chinese economic policy to encourage more consumer-spending and away from government production to reach the desired growth. Younger Chinese consumers are shopping online to the extent that previous generations never dreamed.
The TICKs theme represents entire economies and not just companies. Analysts believe that this trend will continue in the future. But there is need for more economic data before jumping onto the TICKs mindset. Investors will put their money where they feel there is the best risk-weighted return on investment, regardless of such classifications and other catchy slogans created by investment firms.