BRICS may turn into a DIX: interests of IT investors have shifted towards Asia

The IT industry of the BRICS countries is losing its investment attractiveness. But now IT companies from the so-called TICS countries are coming to the fore.

The Union of Brazil, Russia, India, China and South Africa was “buried” after Goldman Sachs closed a fund that invested in the BRICS countries. The asset level of this fund fell to $ 100 million (the peak of 800 million was reached 6 years ago).
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According to some experts, BRICS should be reborn: instead of Brazil, Russia and South Africa, it will include Taiwan and South Korea. In this way, the merge is updated to Ticks. According to a study by the American research company Copley Fund , the share of TICS countries in the portfolio of an average investment fund in emerging markets has reached 54%.

Now in Taiwan, the IT sector accounts for 35.9% of the total capitalization of local companies, in India - 14.1%, in Korea - 9%. The share of IT in the capitalization of Chinese companies is only 4.8%, but shares of companies from mainland China are not yet included in the MSCI Emerging Market Index (EM), so the actual situation in China is reflected in Hong Kong's figure of 11.6%, the data Vedomosti.

In Russia, high-tech companies provide only 4.1% of market capitalization. True, in the EU countries, as well as in Australia and Canada, the share of IT is lower, and in Brazil at all about 0.3%.

The BRICS countries are interested in IT products from Russia, Nikolai Nikiforov, head of the Ministry of Communications and Mass Media, said in January:

“This is quite realistic, there are already specific companies, products, projects, and we intend to support them. I am also in close contact with colleagues in the BRICS block, we regularly meet, communicate, synchronize our action plans, and we can even reach a specific program of such actions. We agreed that the meetings will be held annually. The BRICS Chairmanship will be transferred to India in February 2016, we will be preparing a meeting already on Indian territory. ”

“In terms of GDP growth, TICS, of course, is faster than BRICS. But mainly due to China (+ 6.9%), India (+ 7.3%), Korea (+ 3.0%). Things are bad in the economy of Taiwan, ”notes Mikhail Krylov, director of analytical department at Golden Hills-Kapital AM investment company.

David Lubin, who heads up the emerging markets economy department at Citi , explains this by the limited freedom of expression in Russia: “People in Russia do not see the point in doing something. I think an explanation must be sought in the political system and political culture. To open the way for innovation, one must be given freedom for dissent, disagreement, and creative expression. ”

However, China can not boast of having a special freedom of thought and expression. In addition, as noted by Charles Robertson, who works at Renaissance Capital Bank, the achievements in the field of IT from Russia are more significant than it may seem to many.

Robertson refers not only to the experience of Yandex and Mail.ru , but also to the Magnit retail network: “Trade is built on logistics, and Magnit uses its own developments in this area, no worse than Amazon .”

Konstantin Styrin, a professor at the Russian Economic School , believes that the main obstacle for Russia is the low quality of institutions that ensure the rule of law, the protection of private property and an independent court. This is especially harmful to the IT sector, where risks are relatively high. Styrin also notes excessive "regulation" of the economy.

The time of Russia's chairmanship in the BRICS has come to an end. It lasted from April 2015 to February 2016. The prospects for the continued existence of the organization are now in doubt.

However, not all the BRICS countries are evaluated in a negative way, but only the countries experiencing an economic downturn - Brazil, Russia and South Africa.

MIT professor Edward Crawley looks at Russia with optimism: "Scientific education here remains of high quality, and, in particular, a high level in applied mathematics can eventually allow Russia to achieve much in the development of IT networks, information security and data analysis."

No one officially announced the dissolution of the BRICS. Rising prices for raw materials or diversification in the member countries of the Union can again make them attractive to investors.