Solid BRIC or Half Sucked MINT?

After more than 10 years since the infamous BRICs Report by Jim O'Neil of Goldman Sachs – the latest "next big thing" to invest in according to one research house is MINT...

After more than 10 years since the infamous BRICs Report by Jim O'Neil of Goldman Sachs – the latest "next big thing" to invest in according to one research house is MINT. MINT is the acronym for the latest set of emerging market countries, the destinations in question being Mexico, Indonesia, Nigeria and Turkey.

Whilst we did do extensive background research into the viability of BRICs, at the time it was more a case of seeing how O'Neil's predictions had faired in his initial report as far as property was concerned.

As it happened (despite quite a lot of assumptions in O'Neil's original report and having run for only 20% of the time span it was initially written to cover) investing in the BRIC countries for the most part as far as property is concerned would and is a pretty sound idea.

At this point I will make no claims to be an economist, but will instead offer my thoughts on the concept of MINTs – from a property investment angle.

Mexico: Heavily reliant upon the US market – with little exports elsewhere around the world. With the US economy being in very poor shape at present, unless Mexico begins to look at revenue sources other than the US, the long term prospect for continued growth has to be questioned.

Indonesia: With a very large population and being a very industrious nation, Indonesia does hold some promise, although not without its fair share of risk: In the past, uprisings have taken place, its currency has suffered from large crashes on the international currency markets and politically it can be a very volatile place indeed.

Nigeria: Ranking at position 134 out of a possible 178 positions on the global transparency index with a score of just 2.4 (10 being the most transparent and 0 being the least) one has to question initially quite how Nigeria can make it into the list at all.

Granted, Nigeria has some thriving commodity businesses, namely gold and oil to start with – both of which are largely funded and managed by foreign entities rather than being managed locally, generating revenue from foreign investment in the form of taxation, rather than profit generation through its own doing.

Turkey: In the past couple of years, Turkey has weathered the global recession very well on a number of levels – especially property. However, Turkey still has a few issues – it too has seen huge volatility with inflation and its currency, continued rejection from European Union membership, and its on-going dispute over Northern Cyprus. From a geographical perspective it boarders some very volatile countries and whilst unlikely to get involved, its markets could easily be affected by difficulties in neighbouring regions.

On the whole I suspect the concept on paper might stack up if a fund was created that would hedge across most of the sectors in each country. The internal volatility of the fund itself though would likely cause sleepless nights for even the most hard-nosed fund manager.

The key difference between the BRICs countries and MINTs is a little simpler than that though – each of the BRIC nations could stand to acquire continental dominance in its region (in many areas they already have) whereas MINTS do not. They might perform well in specific sectors within their region – but economic dominance will elude them all.

Would I invest in property in any of these regions?

The only country on the list I have spent time in is Indonesia – and as pleasant a place for the most part it might be, I would not be in a rush to buy there. Rental prices are high and lending is tight for residential housing. Commercial property in the main business districts would be worth a shot – but it would be in a bid to diversify a wider portfolio rather than a single investment.

Mexico: Given its reliance on the US I suspect it could be a long wait until we see any kind of real traction in the property markets. 4 or 5 years ago you would often see developers and promoters at exhibitions that appeared to be doing very well, most of the second home market was American ex-pats. This I suspect has waned with less cash available in the US.

Nigeria: The corruption level is far too high, making this an outright "no" for me across the board. Whilst I haven't been there personally, I have several friends and acquaintances that have. Sadly, none have had anything very positive to say. Investing in companies with activities in the region in the gold and oil business would potentially be worth a shot – but in the real estate sector at any level I would have to walk away.

Turkey: As an economy, Turkey still has a lot of progress open to it – the property market has had its problems in the past with respect to legislation and ownership which, for the most part, it has been seen to tidy up. Whether there is any profit left in the property market remains to be seen. Turkey has long been seen as a very popular holiday destination for Europeans – and there is a substantial established property market already there, catering successfully for ex-pats. Long term income from property is certainly feasible – short term capital gain however I feel might be somewhat limited.

Overall there will be a few star performing investment niches in the regions – with respect to property though, the length of investment would need to be substantial in my opinion to see any significant income or capital gains. Emerging markets in every investment sector have always received a lot of hype – the thing to remember is they actually need to emerge for any real profit to be made.

- Wednesday 11 May 2011

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