Why Not Add South Korea To The BRIC? (EZA, EWY, EEB)

Despite a lot of buzz about South Africa sitting in on the next meeting of the BRIC countries, the godfather of the group can name several better candidates for inclusion.

Jim O’Neill of Goldman Sachs, who pioneered the combination of Brazil, Russia, India and China as an investment category, says that South Korea would add more heft to the group, which has taken to formally convening about once a year.

While South Africa — Africa’s biggest economy — presumably gives the quartet extra geographical reach, O’Neill says it is also a much smaller economic opportunity than Korea, Mexico or Indonesia.

South Africa generates around $285 billion in annual economic activity whereas Korea, the smallest of the three countries on O’Neill’s top non-BRIC tier of “growth economies,” delivers three times as much economic heft.

Even Turkey, often overlooked in lists of emerging powerhouses, has an economy more than twice as large as South Africa.

Nonetheless, the self-reinvention of the BRIC as a political club means that its members will not necessarily play by O’Neill’s rules. Mexico is likely too closely associated with the United States to expand the quartet effectively, while Turkey still looks toward the euro zone.

South Africa, however, can offer a resource-hungry China in particular access to a continent’s largely untapped oil and other materials.

Either way, to replicate the impact of an enlarged BRIC — O’Neill’s version or the political club — start with a BRIC fund like the Guggenheim BRIC ETF (NYSE:EEB) and either add iShares MSCI South Africa Index ETF (NYSE:EZA) for South Africa or iShares MSCI South Korea Index ETF (NYSE:EWY) for South Korea.

In terms of weightings, be careful. On a pure GDP basis, the EZA option should only represent 2% of your “BRICS” portfolio. Adding EWY instead would need a 5% allocation — still not much of a splash at all in the $15.4 trillion BRIC bloc.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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