luxembourg-based funds look to realise emerging markets potential
BNP Paribas Asset Management is to launch two Luxembourg-based funds investing in the BRIC countries. The funds will aim to capitalise on the growing interest from investors and potential economic growth of Brazil, Russia, India and China.
The four countries were christened BRICs by Goldman Sachs in a well publicised report in October 2003. The report outlined the potential growth of Brazil, Russia, India and China to the year 2050.
It stated that within 40 years, the BRICs economies could together be larger than the G6 economies in dollar terms. At the moment, BRICs are worth less than 15%. Goldman Sachs said that of the current G6 countries, only the US and Japan may be among the six largest economies in US dollar terms in 2050.
Francois Petit-Jean, head of new markets at BNP Paribas Asset Management, said the first fund will be launched by the end of October and will only invest in equities in Brazil, Russia, India and China. It will be managed by existing fund managers of the four stock markets, with Chinese exposure gained through Hong Kong.
"The fund will start with equal weightings between the four markets," said Petit-Jean. "There will be tweaking of the asset allocation between the markets but this will be a maximum of 5% either way for each country.
"The attraction of the BRICs countries is their potential economic growth. It can be argued that some emerging markets have already been through their rapid economic phase and should now be regarded as developed economies, such as Taiwan and South Korea."
Petit-Jean added that the benchmark and tracking error for the fund has yet to be decided, and the name. If there is a low tracking error, said Petit-Jean, it will limit market risk but may detrimentally affect the fund's performance.
He admitted that investors should expect volatility in the fund. Petit-Jean said: "If investors come into the fund for two or three years, they may experience volatility. But over the longer term, there is the chance to benefit from the potential economic growth."
Investors concerned about potential losses may prefer the second BRICs fund which will be launched by the end of this year. As well as investing in equities in Brazil, Russia, India and China, the fund will be able to invest in US fixed income and cash. This will enable the fund to limit losses when it is bearish about prospects in BRICs markets.
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