In Search of the Next China: Evaluating the MINT Economies

NEW YORK (TheStreet) -- They grow up so quickly, don't they? The BRIC economies (that is, Brazil, Russia, India and China), coined as such by former Goldman Sachs economist Jim O'Neill, have become economic heavyweights in each corner of the globe. Now investors are turning their eyes to the next, hot emerging markets -- those that are relatively young, cheap enough to present a buying opportunity, and on the cusp of explosive growth.

O'Neill's next big bet? The MINT (Mexico, Indonesia, Nigeria, Turkey) economies. These, he argued, are the next emerging powerhouses.

But do these economies justify the hype?

According to IHS chief economist Nariman Behravesh, the answer, in short, is no.

"China really has broken all records in terms of how many decades it grew for 10%," he said in an interview with TheStreet. "I know very few countries that have come anywhere close to replicating that kind of performance."

The one-of-a-kind growth China managed in the 2000s, he argued, was a product of sheer size, educational development, massive investments in infrastructure and, of course, favorable global conditions before the financial crisis at the decade's tail-end. This cocktail enabled China to decouple from the BRICs and rival the U.S.'s long-held economic supremacy.

Consider just the first factor, then. China currently has a population of 1.37 billion. Even the largest of the MINT economies, Indonesia, has a fraction of that at 251.5 million people.

However, the MINTs do have unique aspects that investors can take advantage of if they recognize the catalysts to explosive growth -- catalysts such as size, population growth and, most importantly, the ability to increase productivity.

"Technology, education, political stability and sound macroeconomic fundamentals (e.g. inflation, low government debt) are key to increasing productivity," said Sarah Boumphrey, head of countries and consumers at Euromonitor.

Currently, she said, the MINT economies have seen growth on par with 'BRI' (that is, Brazil, Russia and India). Indonesia and Nigeria, the fastest-growing MINTs with IMF estimates for 2014 GDP growth of 5.4% and 7.1%, respectively, can't match China's above-10% growth from 2003 to 2007.

In a phone interview with TheStreet, Randy Warren, CIO of Warren Financial Service, remains positive on the MINTs, but noted three macroeconomic gateways to success: interest rates, a healthy demand for natural resources, and China expanding once again.

"[China] will hang in there for the next few months (maybe the next six to nine months) then start to accelerate at which point these young, upstart economies could be hugely profitable bets," he predicted. "Unfortunately, these countries are going to be highly tied to interest rates and if rates are expected to rise here in the U.S., that's going to be tough sledding for these guys."

Identifying an Outlier

So if these nations can't exactly match China's level of growth, is there one of the quadruplet that will dwarf the others, similar to how China performed against the other BRICs?

Nigeria has certainly been buzzed-about in recent months after surpassing South Africa as the continent's biggest economy by GDP. Its gross domestic product surged to $509.9 billion over 2013 after industries such as IT, telecommunications and online sales were factored in. South Africa's GDP over 2013 was $370.3 billion.

However, Behravesh discounted the country as one of the most promising. Given Nigeria's 170-million strong population is three times South Africa's, the northwestern African nation is actually underperforming on a per-capita basis.

"It's a very corrupt country in which most of the riches -- and it's a very rich country -- have just gone to a very few people. There's huge amounts of poverty, huge development issues," said Behravesh.

Like Nigeria, Turkey has suffered its own corruption issues, a factor that could stem the flow of investment dollars into the country. Take Turkey's most publicized example: the mid-2013 waves of protests against Prime Minister Recep Tayyip Erdogan in Istanbul's Gezi Park which escalated to violent riots and police brutality.

While Behravesh noted Turkey's geographic and demographic advantage as a bridge between the Islamic world and Europe, "there's a lot of corruption, it's very autocratic, [and] the political road ahead could be quite bumpy."

The difference between corruption and good governance, Warren argued, is a major factor in an emerging market's economic stability, one which Turkey and Nigeria need to control.

"Investing is all about confidence, it's about the future. If you can't be confident that things are going to be run in a clean, upright manner than how can you be confident you're going to end up being able to get out of there with a profit?" said Warren. "As an investor, you just want to have that confidence that when you put money to work, the rule of law is going to be in effect."

Mexico, once similar to Nigeria and Turkey in that respect, has undertaken numerous economic reforms including President Pena Nieto's move last year to loosen the monopoly of state-owned oil company Pemex to encourage the development private energy companies.

"All of these countries need to do more in the way of structural reforms, in the way of investing more and Mexico is beginning to do that," said Behravesh.

The economy most preferred among the group, though, is Indonesia, by far the biggest by population and second-largest by GDP behind Mexico.

"Indonesia has a strong domestic market (strongest of the four in terms of growth since 2008)," said Euromonitor's Boumphrey. "It has the largest population and a substantially larger work force. It has high enrollment in secondary education, and enrollment is growing quickly. Mobile telephone subscriptions are high and it has a large proportion of Internet subscriptions (more than a quarter in 2013)."

Advice to the Wary

If an individual investor were to look to these economies to invest, the first key would be to take each on its own merits.

"When O'Neall minted that word (forgive the pun), it did get people thinking about these economies. But there were sort of these contorted efforts to compare these countries when in many respects they defy comparison," said Behravesh.

He advised investors to avoid the hype and instead determine the driving factor of growth. If it's due to high commodity price, such as is the case in Nigeria or Russia, be cautious.

"I'm not saying don't invest but hedge your bets," he said. "If a country's growth rates are based on more solid foundations in terms of diversifying their economies, improving agriculture, improving infrastructure ... a la Indonesia, then I think that's a much more promising and sustainable kind of development."

Above all, timing is crucial, Warren argued. 

"If you're going to take a position in these, it's going to need to be part of a speculative kind of position," said Warren. "Watch interest rates, watch what the Fed is doing, be careful and be quick. Don't just sit on an investment. It's going to be on wild ride if you try to do that. Keep your investments shortleashed."

Finally, while eyes may be laser-focused on one economy, don't discount the potential of other more promising options. Behravesh, for example, believes Vietnam has the potential to follow in China's footsteps, while Boumphrey and Warren prefer the Philippines as an economy flying under the radar but exuding potential.

-- Written by Keris Alison Lahiff in New York.

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