The financial industry loves acronyms, especially long ones. Hence, the EAGLEs, or Emerging and Growth-Leading Economies, a group of underpublicized nations that have economies predicted to grow like none other in the next few years. If you're tired of the certainty that investing in the traditional first-world economies affords, or if you fear the incipient hyperinflation and default that those economies seem to be habitually flirting with, the EAGLEs might provide a way for you to diversify and still enjoy suitable returns.
What Is an EAGLE?
The name was coined in 2010 by Banco Bilbao Vizcaya Argentaria (BBVA), the Spanish banking giant that dominates the industry in Latin America and has a minor presence throughout the United States and much of the rest of the world. Unlike other recent groupings of nations with burgeoning economies that were bundled together, discussed as a unit, and given the name of an animal for easy reference (Asian Tigers, PIIGs, even CIVETs), the EAGLEs' membership constantly changes.
BBVA defined the EAGLEs in 2010 via the following method:
1. Take the G7 countries. (That's Canada, France, Germany, U.S., the United Kingdom, Italy and Japan.)
2. Remove the U.S.
3. Determine which of the remaining non-G7 "emerging markets" economies will contribute more to the world's output over the next decade than the average of the above six, to the extent that anyone knows what the world's going to look like in 2020.
Further explanation
Slightly confused by this? Of course you are. Here's an example:
In 2011, Russia's gross domestic product (GDP) was roughly $2.3-trillion (U.S.). BBVA estimates that it'll be around $3-trillion in 2020. The $700-billion difference is what we're interested in here.
Comparable numbers for the other EAGLEs range from approximately $1.5 trillion (Turkey) up to nearly $25-trillion (China) by 2021. It's important to remember that these numbers are nothing but projections, and that they don't count for the interim years of growth, but they do give us a starting point.
By that definition, as of March 2012, the EAGLEs' lineup consists of China, India, Brazil, Indonesia, South Korea, Russia, Mexico, Turkey and Taiwan. A tenth EAGLE, Egypt, dropped off the list after the Hosni Mubarak regime was overthrown. Investors prefer a sure thing over an unknown commodity, even if that "sure thing" is a military dictator of 30 years.
No one's saying that the aforementioned countries are going to be the primary world players over the next decade, or even close. The U.S. will have (again, according to BBVA) about a $18.7-trillion economy in 2021. India, despite a population quadruple the United States', projects to have a roughly $9.1-trillion economy by 2021. To be an EAGLE, you need both an economy of fair size and the potential for lots of growth. The American economy is obviously the envy of India and will be until long into the future, but the U.S. economy can't grow as fast as India's can, and presumably, will.
What's the point?
OK, so we know what the EAGLEs are. What's the point? BBVA says opportunities will abound among the featured countries' middle classes, notwithstanding that you could say about almost any countries' middle classes. To paraphrase page 29 of the bank's PowerPoint presentation that originally added EAGLEs to the vernacular, these growing middle classes will need financial services, durable goods, education, health and insurance. They'll buy more cars, extrapolating over what's happened since 2005. Each EAGLE will draw more tourists.
A couple of qualifications: Iran could be on the list, but the EAGLEs' "selection committee" discounted it for its political instability. The remaining EAGLEs have somewhat stable governments, as far as these things go. EAGLEs are a concept of BBVA's own derivation, and it's presumably up to the rest of us to popularize it and let it find its way into everyday conversation. As for tangible acts, you can take to profit from having these particular nations placed under one umbrella, the recommendations remain exceedingly vague. The forecasts call for "boost of private consumption" and "change in consumption patterns," for instance.
The bottom line
Really, the EAGLE designation serves only to let you know that at least one multinational financial services firm thinks that these particular countries are worth investing in - again, with the same caveats you'd always consider when putting your money somewhere unfamiliar (or even somewhere familiar). Say you're looking for an exotic and distant locale in which to invest. The thinking goes that you should stay away from nations with small economies (Liberia, East Timor), nations with little expectation of fast growth (Suriname, Portugal), and nations that fulfill both characteristics (Nauru, São Tomé and Príncipe). By investing in the EAGLEs instead, you'd help contribute to (what are supposed to be) the agents of change over the next eight years.
Greg McFarlane is the co-founder of and head writer at Control Your Cash