Undervalued BRICS likely to give strong returns, says HSBC

Predicted strong earnings and low valuations argue that the BRICS economies are likely to continue to generate strong investment returns providing they can stay clear of the eurozone debt crisis, according to HSBC bank.

HSBC fund manager Nick Timberlake has reviewed the investment potential of Brazil, Russia, India and China, the four BRICs nations and anticipates strong economic growth for years to come.

HSBC is one of the world’s largest investors in the BRICS countries, with more than US$10 billion of equities under management.

Timberlake said: “The compelling fundamentals of these regions remain the same, with the collective BRIC nations notching up a population of more than 2.7 billion people and rising, representing 40% of the world’s population.

“The region is rich in mineral reserves including iron ore, aluminium, copper and gold and land for agriculture. Rising affluence means domestic consumption remains a primary driver of intra-BRIC market trade and these nations are becoming less and less dependent on the developed world.”

Timberlake believes that valuations are at attractive levels with current prices presenting a potentially good entry opportunity for investors with a long-term investment horizon.

Here are his thoughts on each country:

  • Inflation in Brazil is finally falling but remains high at 6.5%. Most economists expect inflation to fall back during 2012. Preferred sectors include financials, as banks are highly capitalised and profitable, and consumer discretionary, where demand is likely to continue.
  • Russia appears undervalued. With vast numbers of attractive stocks with low valuations and high profitability in key market sectors, like energy, materials and financials.
  • Rising consumer spending is the primary economic driver in India. The organisation for Economic Cooperation and Development (OECD) estimates potential growth is 9% and that income per capita has doubled in just over the past decade.
  • The outlook for China remains optimistic as valuations remain low relative to historic averages. Flourishing domestic consumption continues fuelled by increasing urbanisation and a growing middle class with a strong appetite for luxury goods and brands.

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