Resurgent growth is reviving one of the past decade’s hottest trades.
Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to nearly two-year highs.
The bet is that a pickup in the global economy will fuel demand for the countries’ commodity exports, drive an expansion of middle-class consumption and help them shore up fiscal accounts.
Wooed by India’s efforts to streamline regulations, Brazil’s economic rebound, stabilizing prices for Russian oil exports and China’s stronger currency, traders are warming to the countries’ higher yields and better outlook for equities.
It is an abrupt reversal after they were scorched by a 40 percent drop in the biggest BRIC exchange-traded fund from the end of 2012 through early last year as Brazil lost its investment grade, Chinese growth slowed from a meteoric pace, Russia’s oil revenue plummeted and India’s current account deficit swelled.
“Improving fundamentals, attractive valuations, and high yields in a yield-starved world make emerging markets once again attractive, including some of the BRICs,” Jens Nystedt, a New York-based money manager at Morgan Stanley Investment Management overseeing US$417 billion in assets, wrote in an e-mail.
Non-resident portfolio flows into BRIC nations rose to US$166.5 billion last month, up from US$28.3 billion in outflows 12 months prior, according to data compiled by the Institute of International Finance and EPFR Global.
Chinese equities saw their biggest quarterly inflows in two years, while traders piled into Indian bonds at the highest level in almost three years, Bloomberg data show.
Templeton Emerging Markets Group executive chairman Mark Mobius favors Brazil, China and India, adding that Russia will also benefit from a growth rebound.
Brazilian assets will benefit as Latin America’s largest economy bounces back from two years of contractions, while Chinese investment will pick up as its foreign reserves recover from a six-year low in January, according to Steve Hooker, who helps oversee US$12 billion of assets as an emerging-market money manager at Newfleet Asset Management.
Coined in 2001 by former Goldman Sachs economist Jim O’Neill, “BRICs” became a ubiquitous shorthand for the fastest-growing emerging economies (other investors later capitalized the S and added South Africa to the mix).
In the decade ending Dec. 30, 2012, developing-nation equities had annual returns of 17 percent, twice those of developed nations.
That changed in the taper tantrum years amid fears that the Fragile Five, which included Brazil and India, would struggle to meet high external funding needs.
Responding to changing sentiment, Goldman Sachs Group Inc shut its BRIC fund in October 2015 after losing 88 percent of its assets since a 2010 peak.
Earlier this year, Goldman signaled its partial return, urging investors to “stay the course” with a bet on currencies from Brazil, Russia and India.
Meanwhile, O’Neill said last month that fears of an economic slowdown in China are “completely overblown.”
To him, the world’s top story remains the rise of emerging-market consumers, led by China’s mushrooming middle class.
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