The term newly industrialized country ("NIC") is an economic classification used by economists to represent economies that fall somewhere between a developed country and a developing country. Countries falling under this categorization are characterized by rapid export-driven economic growth and a secular migration of workers from rural to urban areas.
Some examples of newly industrialized countries include China, India, and Brazil, although definitions of so-called NICs vary between economists. The one thing most people can agree on is that NICs tend to be attractive investment destinations given their strong economic growth rates, which makes the term very important for international investors.
Characteristics of Newly Industrialized Countries
Developing countries are often classified as those with a low living standard, underdeveloped industrial base, and low Human Development Index (HDI) relative to others. Newly industrialized countries share some of these characteristics, but are decidedly moving in the direction of freer and stronger developed market countries, much like many emerging markets.
Some common attributes seen in newly industrialized countries include increased economic freedoms, increased personal liberties, transition from agriculture to manufacturing, large national corporations present, strong foreign direct investment, and rapid growth in urban centers resulting from a migration into cities from rural areas.
List of Newly Industrialized Countries
Economists and investors commonly use the term newly industrialized country, but there is no single agreed-upon definition for the term. As a result, there are many different countries that are considered NICs, although not by all economists or investors by any stretch. Moreover, the classification can rapidly change over time, depending on a country's economic conditions.
That said, some commonly cited NICs include: Brazil, China, India, Malaysia, Mexico, Philippines, South Africa, Thailand, and Turkey. Countries that have moved beyond newly industrialized countries and to developed countries in the 1970s and 1980s include countries like Hong Kong, Singapore and South Korea, among others, as their economies have matured.
Investing in Newly Industrialized Countries
International investors seeking exposure to this fast-growing classification of countries have numerous options. The easiest way to invest in these countries is by using exchange-traded funds ("ETFs") that offer broad exposure to these economies in a single security that can be easily traded on U.S. stock exchanges without worrying too much.
Some NIC ETFs to consider include:
- iShares MSCI BRIC Index Fund (BKF) - Brazil, China and India are three newly industrialized countries, making BRIC ETFs like this one a good option.
- iShares FTSE/Xinhua China 25 Index (FXI) - China is the largest newly industrialized country, making this a large and popular ETF for those looking for exposure.
- iShares MSCI South Africa Index (EZA) - South Africa is one of the most non-correlated NICs, making this ETF a good option for investors looking to diversify.
International investors may also want to consider one of many country-specific ETFs, like the two mentioned above for China and South Africa, or American Depository Receipts ("ADRs") to target specific companies within these countries. ADRs are U.S.-traded securities representing fractional ownership in foreign equities traded on international exchanges.
Important Considerations to Remember
The term newly industrialized country is very broad and ill defined, meaning that international investors should be careful when using it. Many countries falling under this categorization also face numerous hurdles associated with their economic development, such as China's ongoing issues with human rights violations by Western developed country standards.
However, newly industrialized countries shouldn't be ignored. China is expected to become the largest country in the world within the next 50 years, while India isn't very far behind, making these countries very important for global growth. International investors should carefully build exposure to these areas in their portfolios, while taking into account the risks.