Goldman Sachs’ Up-and-coming Economic Giants

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The Next Eleven, known also as N-11, is a term coined by Goldman Sachs in late-2005 to represent the eleven countries it thought could potentially have a BRIC-like impact in rivaling in the G7 nations. While these countries remain distant to the G7 and even BRIC nations, the investment bank insisted that the foundation was in place.

The N-11 consists of Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea. and Vietnam. But, the majority of the group’s gross domestic product (GDP) lies in Mexico, Indonesia, South Korea and Turkey.

Next Eleven Growth Prospects

International investors are primarily interested in the Next Eleven for their investment merits, which are driven primarily by economic growth. Growth rates have generally risen across the group, despite the 2008 economic crisis, while dispersion in growth remains at relatively low levels, suggesting that the countries’ economic performance has been stable.

These growth rates are most attractive when compared to the G7 nations, since their economies tend to be growing at a slower rate. In 2005, Goldman Sachs estimated that the N-11 could reach two-thirds of the size of the G7 economies by 2050. Given the setback experienced among developed nations during the 2008 financial crisis, this timetable could even accelerate.

Some of the fastest growing economies in the region by real GDP in 2011 include:

Investing in the Next Eleven

International investors looking to invest in Next Eleven economies have many different options, ranging from mutual funds to exchange-traded funds (ETFs). In general, the ETFs represent the easiest way to invest in N-11 economies given their targeted exposure and instant diversification in a single security traded on a U.S. stock exchange.

Some popular ETFs include:

• Market Vectors Egypt Index (EGPT)
• Market Vectors Indonesia Index (IDX)
• iShares MSCI South Korea Index (EWY)
• iShares MSCI Mexico Index (EWW)
• Market Vectors Africa Index (AFK)
• Market Vectors Vietnam Index (VNM)
• iShares MSCI Philippines Index (EPHE)
• iShares MSCI Turkey Index (TUR)

Notably, many of the N-11 economies do not have ETFs associated with them and may be difficult to easily invest in from the U.S. Others may offer some exposure through broad regional ETFs, but may be difficult to pinpoint with specific ETFs.

Investors looking for exposure in countries not covered by ETFs may want to consider American Depository Receipts (ADRs). These securities track foreign corporations, but trade on U.S. stock exchanges, making them a great way to build exposure. But investors should be aware that many ADRs have a high liquidity risk relative to traditional U.S. stocks.

Finally, investors should keep some key points in mind when investing in the N-11:

• Geographical Diversification. The N-11 spans Europe, Latin America, Africa, South-East Asia, and the Middle East, making it a very geographically diverse index for investors.
• Wide Variety of Development. The N-11 encompasses countries ranging from the highly developed South Korea to the very poor country of Bangladesh.
• Political Risk in Some Components. The N-11 includes some countries with a lot of political risk. including countries like Pakistan that can prove volatile.

Key Points to Remember

• The Next Eleven, known also as N-11, is a term coined by Goldman Sachs in late-2005 to represent the eleven countries with strong growth potential.
• The largest components of the N-11 are Mexico, Indonesia, South Korea and Turkey, which represent the majority of the group’s GDP.
• The easiest way to invest in the N-11 is using ETFs or ADRs targeting the individual countries within the group, but investors should be aware of the risks.