What Are CIVETS, and Why Are They Important? (GXG, IDX, VNM, EGPT, TUR, EZA)
Slok Carpenter: What are CIVETS anyway? A Goldman Sachs economist coined the term BRIC ten years ago describing the four big emerging markets he predicted would drive global economic growth: Brazil, Russia, India and China.
As the BRICs mature and slow down, economists and investors are looking for the next group of emerging economies offering supercharged expansion and returns.
One example is known as the CIVETS – Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa – an acronym coined by Robert Ward of the Economist Intelligence Unit and Michael Geoghegan of HSBC bank.
What the six diverse CIVETS have in common is young, growing populations with an average age in the late twenties that are expected to increase consumer spending and domestic output.
When Ward came up with the concept in 2009, they all also had reasonably stable political climates. Egypt has since become an exception. The EIU and HSBC suggest that all of the markets can be easily accessed by Western investors – either through country-specific ETFs, highly-traded larger corporations, or multinational corporations that have significant exposure to one or all of the CIVETS. The S&P CIVETS 60 index provides exposure to 60 leading CIVETS companies, and there’s also the HSBC Global Investment Mutual Fund for CIVETS.
Colombia, once renowned as the world’s capital of drug violence, has seen a significant decrease in violent crime and the reinvestment of its oil revenues in infrastructure projects. Textiles and food processing have grown to become major industries alongside the traditional players of oil, chemicals, and mining.
Indonesia is the world’s fourth largest country by population, and has attracted foreign investors by training and educating its workforce. Major industries include oil and gas, mining, textiles, fertilizers, and manufacturing.
Vietnam’s cheap labor has led to a foreign-led manufacturing boom, despite significant government regulations in what is still a nominally Communist state. The majority of the country remains agricultural.
Current political turmoil has put Egypt’s formerly steady economic growth at risk. But in the longer term its key geographic location, oil and gas deposits, and projected growth in consumer spending should lead to economic growth.
Turkey’s strategic location between Europe and Asia and rapid recent growth place it on the CIVETS list. As one of the more liquid of the six markets, it makes a good starting point for investors. It has diversified sources of growth including services, mining, textiles, electronics, and pipelines that carry natural gas from Russia and the Caspian Sea to Europe.
South Africa: (NYSEARCA:EZA)
South Africa has allowed investors a path into Africa, which is mostly characterized by illiquid investment opportunities. Although a slow recovery from the global recession has led to some worries concerning future economic growth, increased global demand for gold has led to growth in the famed South African mining sector.
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