Update on Brazil, BRICs

Thursday, December 29th, 2011

In response to Brazil is World’s 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General? I received a nice email from Felipe Fiel, an economist from Brazil working in the hedge fund industry for Fram Capital.

Felipe writes …

Hi Mish, hope is all well with you. First of all I would like to congratulate you for your blog and outstanding contribution do financial observers. I’m an economist who lives in Brazil, working for the hedge fund industry.

I agree entirely with you about Brazil’s skepticism.

I would like to highlight that the way you show inflation and GDP might cause a distorted impression to your readers.

You show GDP growth quarter-over-quarter seasonally adjusted, without annualizing it, which is the norm for US viewers. It was running at almost 8% annualized growth before 2008 crises and even recently it grew at 3.2% in the 4 quarters before stagnating in 3Q.

For next year, even the most pessimistic projections see growth at 4.3% on average, which is more or less what is seen at GDP potential. However, I personally think we cannot growth at that rate without generating too much inflation.

Best,
Felipe Fiel

BRIC Decade Ends as Growth Peaked

According to Goldman Sachs, BRIC Decade Ends as Growth Peaked

Dec 28, 2011

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.

Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.

BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.

BRIC indexes may fall another 20 percent next year, buffeted by the liquidity squeeze stemming from Europe’s sovereign debt crisis, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $499 billion, said in an interview. Nations such as Indonesia, Nigeria and Turkey may overshadow the BRICS in the next five years as they expand from lower levels of growth, he said.

“The slowdown we’re seeing in the BRICs will continue for most of the first half,” Mahendran said. “Compared to the U.S., corporate profits haven’t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we’ll only start to see the effects of monetary policy loosening in the second half of 2012.”

2011 Losses

The BSE India Sensitive Index led declines among BRIC equity gauges this year, falling 23 percent. China’s Shanghai Composite Index also dropped 23 percent, while Russia’s Micex retreated 18 percent and Brazil’s Bovespa sank 16 percent. The 21-country MSCI Emerging Markets Index (MXEF) lost 20 percent, while the S&P 500 gained 0.6 percent.

The time to warn about BRICs and emerging markets was a year ago, which I did, specifically in regards to China (but also with many references to trade surplus nations and commodity producers throughout the year).

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Tags: 3q, Bric Funds, BRICs, China Stocks, Crises, Decade Ends, Emerging Markets, Fiel, GDP, GDP Growth, Global Data, Goldman Sachs, Goldman Sachs Group, Goldman Sachs Group Inc, Hedge Fund, Percentage Points, S 500, Sachs Group Inc, Skepticism, Straight Quarters
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ETF Strategies for Playing the BRICs

Wednesday, March 24th, 2010

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So far into this recovery, emerging markets have led the charge. At the forefront of that charge are four countries collectively known as the BRICs. Get to know them, and get to know the exchange traded funds (ETFs) that track them.

The BRICs – Brazil, Russia, India and China – were so dubbed by a Goldman Sachs analyst after it became apparent that these four economies had enormous potential for growth in the coming years. Now that a recovery appears to be in place, many feel that these nations have evolved into long-term prospects. [What Defines an Emerging Economy?]

Ron Rowland for Money and Markets makes a case for the BRICs by pointing out that developed markets such as the United States, Europe and Japan are still in not-so-great shape and could be in for a long period of tepid growth. While these countries lag, the BRICs and their ilk may very well catch up.

Brazil boasts a growing middle class and natural resources galore; Russia benefits from high energy prices; India has a lot of intellectual capital and a young, entrepreneurial workforce; and China, the largest of all, boasts nearly everything: a growing middle class, bustling city centers, strong imports and exports. Rowland notes this amazing statistic: China’s economy is 70 times larger than it was in 1978. Wow. [Brazil ETFs: Using Caution If There's a Bubble.]

It’s a lot of food for thought. If you’re interested in using BRIC ETFs to get exposure:

• Think about how much exposure you want. BRIC funds range from broad to narrow funds with a single-country or two-country focus. The more narrow exposure, the more risk you take on.
• Think about the country weightings in the broad BRIC funds – some have a larger allocation to Brazil, while others give the heaviest weighting to China. Which country do you want the most exposure to?
• What’s your strategy? A simple one we suggest is using the 200-day moving average, which has you in and out of positions based on where they are in relation to their long-term trend lines. [How to Follow Trends.]
• For a list of many of the available BRIC-related ETFs, read our special report. Since our report ran, many new funds have launched, including EGS INDXX Brazil Infrastructure (NYSEArca: BRXX), Claymore/AlphaShares China Technology (NYSEArca: CQQQ) and Global X China Materials (NYSEArca: CHIM). These can be used to fine-tune your BRIC exposure even further.
• If you want some oomph and you know that leveraged and inverse ETFs are right for you, Direxion has a pair of leveraged bull and bear BRIC funds: Direxion Daily BRIC Bull 2x (NYSEArca: BRIL) and Direxion Daily BRIC Bear (NYSEArca: BRIS). [Everything You Need to Know About Leveraged ETFs.]

For more stories about emerging markets, visit our emerging markets category.

• SPDR S&P BRIC 40 ETF (NYSEArca: BIK)
• iShares MSCI BRIC Index (NYSEArca: BKF)
• Claymore/BNY Mellon BRIC (NYSEArca: EEB)

[AA] Canadian BRIC ETFs and Funds [AA]

• Claymore BRIC ETF (TSX:CBQ)
• Templeton BRIC Fund CC
• Excel BRIC Fund

Tags: Brazil, BRIC, Bric Funds, BRICs, Commodities, Country Focus, Emerging Markets, energy, Energy Prices, ETF, ETFs, Exchange Traded Funds, Food For Thought, Forefront, Goldman Sachs, Great Shape, High Energy, Ilk, Imports And Exports, India, Intellectual Capital, Middle Class, Moving Average, Natural Resources, Russia, Statistic, Term Prospects, Term Trend, Trend Lines, Workforce
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