When rebuilding a stock portfolio look abroad, especially to Brazil, China, India
Want to rebuild your stock portfolio? Start with a BRIC strategy. As promoted by Goldman Sachs Group Inc. in 2001, this approach focuses on Brazil, Russia, India, and China. While their stock markets were as battered as those in North America and Europe in 2008, most of them may recover faster and offer sustained growth.
Only the Russian economy raises some questions. Dogged by loan problems, joblessness, and low oil prices, Russia's economy will contract this year. The country's population shrank in 2008 for the 14th straight year.
China, India, and Brazil are a different story. It is impossible to ignore the population growth and human capital in these developing nations, which don't have a fraction of the weaknesses that the Western banking system has.
Another reason for renewed faith in the BRIC strategy - or rather BIC (excluding Russia) - is the eventual economic decoupling of China from the United States. At some point, China will wean itself off export income and concentrate on domestic demand. That's good news for international investors, given its more than 1.3 billion people.
China, India, and Brazil aren't suffering as much from the crippling leverage problems of the United States and Europe. They are unlikely candidates for large US-style borrowing to fix banking and housing markets. And they are less likely to be saddled with inflation and debt when the recession ends.
The Chinese economy is likely to grow almost 8 percent in 2009. In contrast, Japan's, South Korea's, and Taiwan's may shrink this year.
China's stock market, though, doesn't reflect the country's relative financial strength. Unlike the United States, which is largely borrowing from China and other nations to finance its government spending, China is bolstering its economy from a huge cash pool. Its foreign-exchange reserves alone amount to almost $2 trillion.
China's future isn't all roses, though. Dealing with a collapse in global trade, the nation still faces massive factory shutdowns and 20 million unemployed.
Brazil grew 5 percent last year and the resource-rich country will benefit from trade with a growing China. India, which is getting a boost from a $31 billion government stimulus, will also see improved domestic demand.
By the end of last week, Brazil's Bovespa had risen more than 11 percent, Russia's Micex Index had added 31 percent, India's BSE Sensex 30 had climbed about 4 percent, and China's Shanghai SE Composite Index had gained more than 30 percent in 2009.
Don't look for any developing country to be an instant savior for your portfolio, though. Invest long-term in a diversified international index or exchange-traded fund. Think beyond the current morass. If you can afford to be in the stock market, your best investments may be the farthest away.
John F. Wasik is a Bloomberg News columnist. 
