Emerging markets are a volatile place to invest, but that’s their attraction for many investors. It sounds counter-intuitive, but adding a notoriously volatile asset class to your portfolio can help reduce the portfolio’s overall volatility, while adding to its potential return.
Over the last decade, the sector has been popularised by the BRIC acronym – standing for Brazil, Russia, India and China – coined by Goldman Sachs’ Jim O’Neill in 2003. Those four large emerging markets make up most of the sector’s benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets Index, and have been the mainstay of the Emerging Markets’ return.
The growth story
The BRIC countries – particularly China – have been strong generators of economic growth. The economies of the four BRIC countries grew at an average annual rate of 6.6% between 2001 and 2010, twice as fast as the global economy and four times the rate of the US.