Naturally, what happened last year could happen again this year but experts believe that this will not be the case. A combination of competitively strong GDP growth and more realistic valuations will continue to make the BRIC economies attractive investment destinations. Further, these countries have demonstrated their ability to control inflation without curtailing the growth of their economies. The opportunity arises because despite the recent rise, BRIC equities are still trading at valuations that are well below their historical levels. These equities are currently trading at 10 times earnings as against a historical level of up to 13 times earnings.

However, you should remember that further negative complications in the European debt crisis as well as other negative developments in the global economy could dampen these prospects at least temporarily. These potential problems could include restrictions on credit hampering growth in China, continuing food inflation in India and an unanticipated slowdown in the global economy. Realistically, you should also expect lower GDP growth of the growth rates would continue to be healthy and well ahead of the growth rates of the developed countries. Growth in developed countries is expected to drop to 1.3% this year while emerging market are expected to grow at a lower rate of just over 5%.

The relatively strong growth rates will continue to have a positive effect on stock prices and many fund managers are increasing asset allocations to emerging markets generally and the BRIC economies in particular. They also believe that households in US and Europe will be unable to spend much because of what they need to service debt. On the other hand, the growth in emerging markets would place far more spending power in the hands of the consumer to fuel growth. These growth prospects are also expected to offset the higher risk of investing in BRIC countries.

BRIC countries will never be easy to invest in because of the complicated local conditions and the time and effort required analyzing investments. If you are attracted by the prospective returns but do not have the time or expertise to identify direct investments, you should let the experts on the job for you. You should use BRIC ETF investments to achieve your exposure and portfolio diversification. Depending on your views on the various countries in BRIC, you can choose ETFs that allocate your investment in accordance with your preferences.

The year 2011 saw high inflation rates in all of the BRIC economies at the beginning of the year but by the third quarter, inflation pressure was noticeably easing. To add to these problems, the troubles in Europe saw many investors turn risk averse and sell what they perceived to be riskier investments regardless of the soundness of the fundamentals. Inevitably, there was a sell off in BRIC equities. The resulting market correction should be viewed in a positive fashion because of the significance for future investment.

The year 2012 has therefore begun with low valuations of BRIC equities whether you are using price/earnings or price/book. In fact these valuations suggest that market valuations are reaching the previous record low of 2008. Certainly, when you compare these current valuations to their historical average, these markets are beginning to look undervalued. These valuations also look unduly bearish in comparison to the fundamentals. As a result, it does look as if these markets are going to provide positive returns for the year 2012. There should be nothing but good news on the assumption that there will not be a global financial crisis like a few years ago.

The European crisis is going to be the millstone around the neck of the global economy as far as growth is concerned and some kind of global recession certainly cannot be ruled out… However, the BRIC countries are likely to continue healthy GDP growth now it may be lower than historic growth rate. They have the ability to grow because of their foreign currency reserves and the continuing growth in domestic demand. They also have the ability to continue to provide the stimulus for growth. Falling inflation rates also provide them with the capability to slash interest rates and provide cheaper capital to fuel growth.

It is never going to be easy or less complicated if you are contemplating investment in the BRIC sector. The average retail investor is simply not equipped to deal with investment decisions and the ability to manage them. You should therefore leave this to the experts such as the BRIC ETF managers. You can get some of the benefits of BRIC exposure for a relatively small investment while diversifying and capping your risk.

Brazil is exceedingly rich in natural resources and the extraction and exports of these resources is a major part of the economy. China has demonstrated seemingly limitless demand for metals such as copper and aluminum and as well as minerals such as iron ore that go into the making of steel. With a growing population that is increasing reliance on conventional forms of transportation, there is a pressing need for China to invest in and build up the necessary infrastructure. Brazilian companies have taken advantage of this demand and look like attractive investments.

One way to cash in on this trend is to consider an investment in a company called Companhia Vale do Rio Doce (RIO). Not many people are aware of the existence of RIO even though it is one of the largest mining companies in the world. It produces and sells more iron ore than any miner in the world. Its relative anonymity means that it is available to investors at most attractive valuations. RIO has a stable and profitable business’s and is considered to be a well-managed company.

The market for oil and natural gas continues to be buoyant with prices attractive enough for producers to make large profits. It would appear that global demand continues to outstrip global supply providing support for high price levels. Despite the concentration and investment on no conventional sources of energy such as solar power and wind power, it is difficult to see a reduction in demand for fossil-based fuels in the foreseeable future. The fundamentals of the oil and gas industry will continue to be strong for many years to come.

One attractive investment in the oil and natural gas business appears to be the company Petroleo Brasileiro (PBR). PBR is a diversified energy producer which specializes in exploring and developing fields for crude oil and natural gas. Over the past few years, they have made discoveries in their Tupi oil field which is considerably boosted their reserves. They have been transformed from a player on the sideline to an oil and gas major in their own right. The other reason PBR looks like an attractive investment is because they are controlled by the state. The Brazilian government therefore has a vested interest in the efficient and profitable operations of the company as well as the prevention of any political instability that could have an adverse effect on the fortunes of the industry and the company.

Investment in Brazil will continue to be difficult and potentially higher risk and one of the best ways to ease the process and to mitigate risk is to find a BRIC ETF that has a relatively high weighting on Brazil. Brazil, like other South American countries, tends to have a higher degree of political instability and in ETF is a good way to benefit from the growth in the Brazilian economy.

Over the past decade, the national economy has grown at a scorching near double-digit rate and the population has become far more consumer oriented as a result of this growth. Continuing conflicts with its neighbors as well as the dominance of President Vladimir Putin has led many investors to believe that the country is politically unstable and that the RTS continues to be vulnerable. However, if you can live with these risks, Russia could prove to be an extremely profitable investment.

One of the problems for potential Russian investors is limited access to Russian stocks. Few Russian stocks are listed on global exchanges like the NYSE and the most convenient options are to invest in American Depository Receipts or the BRIC Elf’s that have an asset allocation to Russia. The three sectors that are worth investing in are commodities, telecommunications and consumer goods.

The oil and natural gas industry accounts for a very substantial portion of the GDP of Russia and makes up some two thirds of its exports. The Russian government has very large stakes in promoting this business which is absolutely critical to the health of the economy. The largest company in the sector that is not controlled by the government is Lukoil whose large reserves in the same league as the oil majors such as Exxon and BP. The company also sells the gasoline it produces through a chain of filling stations in more than a dozen countries including the United States. It is a stable company and his strategic partnerships with other oil companies such as ConocoPhillips and Italian refiner ERG to support its business growth. Lukoil is listed on the NASDAQ as an ADR.

As with the other BRIC countries, development of a national telecommunications infrastructure is considered essential for growth and Vimpel-Communications (VIP) is an important player in the industry. In addition to providing wireless services for broadband and data, VIP also sells mobile handsets and accessories and associated services. The company has recently acquired rival Golden Telecom which provides it with an enhanced market share. VIP is listed on the NYSE.

Russia is not an easy country in which to invest in and Russian stocks are difficult to analyze for investment purposes. In combination with the relatively scarce access to Russian stocks, an invested interested in exposure to Russia in his portfolio would probably be best off by investing in the BRIC Lefts. Different Elf’s have differing exposure to Russia and you can pick the ETF that best suits your risk appetite.

Unlike Russia and Brazil, where economic growth is fuelled by natural resources such as energy resources or iron ore, India does not have these seemingly limitless supplies of natural resources. India’s success lies in the development of three major sectors in their economy namely information technology, pharmaceuticals and financial services. The information technology industry has emerged as a major outsourcing destination for the world and provides high-quality services at reasonable costs. A large well-educated English-speaking population provides a large pool of man power that is critical to the success of outsourcing. The pharmaceutical industry has thrived on producing low cost of drugs for a global population that is increasingly looking for cheaper medication. The emergence of the middle class and their purchasing power as the engine that drives the growth of financial services.

It appears that the near double-digit growth of the economy is now slowing down because of the slow recovery of the rest of the world from the major economic downturns of the past two years. Inflation that is barely under control continues to be a major concern and the Reserve Bank of India, the central bank, has resorted to a series of frequent interest-rate hikes in their attempts to dampen inflation. Very few Indian companies are listed in the United States and for people willing to invest in the success story of India, BRIC ETF’s are probably the most convenient way of doing so.

The Indian pharmaceutical industry is an interesting play and deserves a closer look. Globally, people are living longer and are therefore looking to more cost-effective use of medication and drugs. The domestic markets in the BRIC countries themselves provide considerable growth opportunity as a more affluent middle-class is able to afford higher quality healthcare. Indian pharmaceutical companies specialize in the low-cost manufacturer of generic drugs and, apart from the domestic market, catered to the increasingly cost conscious global consumer.

Investing in BRIC ETF’s can give you an exposure to the Indian economy and the exact exposure will depend on the asset allocation of a specific ETF and await each that it gives to India. These ETF’s own a wide variety of stocks in the BRIC countries and are passively managed with performance linked to an underlying index. While they resemble mutual funds in that they own a pool of securities, they resemble shares because they can be freely bought and sold on the stock exchanges. Because of their passive management, they tend to have low expense ratios. For instance, the WisdomTree India Earnings Fund (EPI), which is the first India specific ETF, has an expense ratio of less than 1%.

China is among the three largest economies in the world measured in terms of purchasing power parity and has achieved an enviable GDP growth rate of 10% every year. They have declared their global ambitions by hosting the 2008 Olympic Games. Similar to the other BRIC countries, China is characterized by strict government control and a rising middle class that is eager to consume. The notable weakness in the Chinese economy is the banking and financial services sector where businesses find it difficult to access capital while the system is marked by inefficiency and corruption. If you have the courage and the patience to stay invested in China through turbulent times, your investment is bound to pay off over time.

Mining is one of the industrial sectors that are crucial to the success of the Chinese economy. While there is a lot of talks about crude oil and natural gas, people tend to forget that China produces two thirds of its energy from coal and, despite the environmental and pollution concerns, a cheap and plentiful supply of coal was required for the foreseeable future. Coal can be liquefied into other energy sources such as ethanol and gas and the major Chinese coal mining companies are actively considering these possibilities as a source of diversification. Government control over pricing will be a key issue to be addressed in attracting foreign investment.

Energy is another critical sector and China, much like Brazil and Russia, is rich in natural resources. The emerging consuming power of the middle-class will mean that more people will drive cars and drive an increasing demand for gasoline. China is in the throes of a massive drive to locate new energy reserves that can be exploited commercially. And like all other BRIC countries, upgrading infrastructure is a major priority and the telecommunications sector should not be overlooked.

Because of the rapid growth and the size of the Chinese economy and the key role that it plays in global trade, any serious investor would have to allocate a part of his portfolio to a China exposure. The easiest way to achieve this exposure is to buy a BRIC ETF that is overweight on China. Another alternative is to seriously consider the SPDR S&P China (GXC) which is one of the more diversified of China’s ETFs, with investments in 342 different companies. Analysts are now paying serious attention to China and the quality and flow of research and information should improve considerably over time.

Sustainable growth in the commodity markets as well as remunerative prices remains critical to the well-being of all four economies. As a potential BRIC investor, you should study the global outlook for grain and oil prices which are critical to the well-being of Brazil and Russia as well as the overall health of the Chinese and Indian economies because robust growth will mean enhanced commodity consumption. Overall, spending on infrastructure continues to be robust in all four countries which mean that the high growth rates are sustainable in the long term. Obviously, positive developments in these economies will have a positive impact on the global capital markets. Savings rates in India and China are adding to global liquidity while the rapid growth of China’s reserves means that equity markets are getting a boost on the back of Chinese investment looking for higher returns.

The main concerns about the growth in Brazilian agricultural production revolve around environmental concerns, the high levels of farm debt and rising production costs. Brazil is currently farming about one third of its total arable land but this expansion could be constrained in the future. In addition, Brazilian transportation infrastructure is growing slowly and has not kept pace with the increase in agricultural production. Rising domestic demand may also curtail the availability of products for export. For instance, Brazil supplies over one third of the total soya bean imports into China. Sugar production and processing continue to be strong and this gives Brazil a major global comparative advantage in the production of ethanol. Brazil is the second largest producer and exporter of soya products in the world and given the rapidly reducing acreage of soya farming in the US and in China, this has profound implications for the Brazilian economy.

The areas under wheat cultivation in Russia are growing steadily but there are still major variations from year to year in actual wheat output. Because of the strong growth in the economy, demand for meal and edible oil in India continues to grow strongly while domestic production will not keep pace with demand. In China (the largest producer and consumer of food products in the world), food stockpiles are dwindling while domestic demand for corn and oilseeds continues to show strong growth and domestic production is highly unlikely to catch up. In short, demand for commodities is likely to be steady and this will have a positive impact on the economies of all the four BRIC countries.

However, the outlook now appears much brighter as inflation in these three countries slows down and the steep interest rate increases appear to be coming to an end. BRIC valuations are now considered relatively cheap and though growth in company earnings will slow, they will still be robust. Julian Thompson, of AXA Investment Managers, is of the opinion that because India, China and Brazil started raising interest rates ahead of the other developing countries including Russia, they will stop first. Says he “Markets don’t perform when a tightening cycle is on, Brazil, India, China erred on the side of too much stimulus (during the crisis), it has taken quite a bit of time to take the stimulus out, but we are almost there now.”

Worldwide, all the developing countries have been struggling to develop a balancing act between growth and inflation which has been exacerbated by rising wages and high commodity prices. For instance, the Indian government announced that inflation would stay at 9% up to October and come down after that as prices for fuel and food become more stable. Inflation in China has peaked at a three-year high of over 6% and many experts now believe that inflation is under control. Brazil has hinted strongly that interest-rate increases are at an end and that fourth-quarter inflation would be as targeted. During the period of rising interest rates, Brazilian, Chinese and Indian equity funds saw large outflows to the tune of $3.3 billion in the first six months of this year whereas Russia saw inflows of $3.1 billion during the same period.

The acid test could well be India which is not found favor with investors over the past year and many investors are still underweight when it comes to China and India.ulian Mayo, of Charlemagne Capital comments “The big concern has been inflation and our view is that inflation is not tomorrow’s story. Even India, which has had big problems, will start to see falls in inflation and we expect that market to show improvement going forward…(In Brazil too) a lot of the bad news is already in the price.” If you are looking for possible success stories in these equity markets, look for stocks of companies that thrive on domestic demand.

While these countries are growing very strongly in relation to the Western world, investing in them is not as easy as it may seem at first glance. Brazil is the largest economy in Latin America and a major exporter of energy. Recent offshore finds in the Atlantic Campos Basin will have augmented the already considerable reserves of crude oil and the country looks set to be a major crude oil exporter in the foreseeable future. Russia is also a major producer and exporter of oil and gas to the rest of the economy is still struggling with the transition to the open market. Russia has managed its foreign debt and its economy well and its GDP has doubled during the first decade of the 21st century.

India has achieved global eminence in manufacturing and has successfully short-circuited the development process by becoming a global leader in the service based industries. A highly skilled labor force that is well educated and proficient in English has driven growth in industries such as information technology and outsourcing. China is the largest of the BRIC countries both by population and GDP and is well on its way to becoming the largest economy in the world. Years of trade surpluses have provided enough foreign currency reserves to drive the growth for many years to come.

Yet some problem areas still persist. In the area of infrastructure, Russia is still widely perceived as having major infrastructural problems because of the collapse of the Soviet economy and much of the infrastructure still continues to be rickety and this leads to challenges in areas such as logistics and transportation. India suffers from the problems of poverty and an inadequate infrastructure though a great deal of priority is being given by the government to the development of infrastructure.

A major problem among many developing countries is referred to as “Dutch Disease” where the easy availability of earnings from commodities and natural resources tend to overshadow the development of manufacturing and technology. This is not seen as a problem for either India or China who have both moved aggressively to push manufacturing. China in particular is well on its way to transitioning from a mass manufacturer of cheap goods to a full-scale exporter of sophisticated items such as Telecom and power generation equipment.

The first of these areas is poverty which is rampant particularly in Brazil and India where an estimated quarter of the population lives below the poverty line. Not only does poverty prevent a country from making full use of its human resources but it can also stoke up dangerously high levels of resentment which could lead to political strife and uncertainty. The skewed and unequal distribution of wealth is an equal problem and even more dangerous for the investor because populist governments may try to address this problem with Draconian solutions. This is a particular problem in the instance of Brazil which rates very highly on any list of unequal wealth distribution and China where the rise of the newly rich is going to create a problem in the future. Many people do not realize just how poor the average Chinese citizen is. Russia and India are closer to the Western standards from this viewpoint.

Where there is poverty and constant interference by government in the operations of business, corruption is a given even though measuring it may be difficult. The Corruption Perceptions Index that is produced by Transparency International may not be ideal but still offers some interesting insights. Brazil with a rating of 69 may seem to be highly corrupt but ranks the highest among the BRIC countries, China and India rank 78 and 87 respectively while Russia comes in at 154. In Russia, it is not uncommon for organized crime to control companies or indeed entire industries. In China, government officials are often paid to wink at infractions of the regulations and the laws.

One of the main advantages of a good rule of law is that, apart to minimizing corruption, the law is applied fairly and consistently and a strong judicial system ensures this process. In Russia for instance we have seen that this is not always the case and companies on good terms with government would often obtain favorable treatment while unfriendly companies are coerced and arm twisted into falling into falling into line. This is true not only of domestic Russian companies but also of major international companies such BP. In countries like India, though there is a body of law and a strong judicial system, bureaucratic red tape and the slow progress of litigation in the courts can be highly frustrating. The system of regulation also makes it far more difficult for large companies to grow and prosper freely. China does not have a well defined body of law or due legal process. Comparatively, Brazil is probably the best in this respect.