Brazil, Russia, India, and China — together termed BRICs — combined were a marketing-led concept that have been an investment disaster, according to John-Paul Smith, emerging markets equity strategist at Deutsche Bank.
“People were launching BRIC funds three, four, and five years ago. When Jim O’Neill made the call it was a fantastic call for a few years but then, as with these things, it was taken too far. The reason they are uninvestable is because of the extent of state intervention in those markets, which nobody would have foreseen three years ago,” Smith said.
The term BRICs was coined by Jim O’Neill, chairman at Goldman Sachs Asset Management, a decade ago to describe the most dynamic emerging economies.
Smith added that with the exception of India the extent of arbitrary state intervention meant most companies you invest in are there to serve the interests of the broader economy rather than the individual investor.
In a note earlier this month, O’Neill said investors would need to get used to a "new" China for which relatively lower growth of 7 percent to 8 percent would be the norm. He also added that it would be consumption from the Chinese that would be the driver of economic growth going forward, not exports or state-directed investment.
Goldman Sachs said in a note on Thursday that it expects lower growth for emerging markets overall and below consensus growth for BRICs in 2012. It added that it expected weaker growth for Brazil, India, and China for 2012, and had cut its forecasts for 2012 and 2013.
Smith said his recommendation to investors regarding BRICs remained the same as it has been for two years, calling for a "sharp underweight" in emerging markets compared with the U.S.
“The U.S. has outperformed in dollar terms by around 33 to 34 percent over that time. The lesson of the past two years is you have to take a contrarian perspective and you have to base your trade on sentiment and trading against the market,” Smith said.
—By CNBC.com’s Shai Ahmed; Follow Her on Twitter @shaicnbc