The BRIC grouping of Brazil, Russia, India and China has never looked so disunited to stock investors.
While Chinese and Indian benchmark equity indexes have surged an average 40 percent this year, Russian and Brazilian gauges posted a mean drop of 4.2 percent. The annual divergence is on pace for the biggest since economist Jim O’Neill coined the term in 2001, leaving the combined market capitalization of Chinese and Indian equities $5.2 trillion larger than that of Russia and Brazil, according to data compiled by Bloomberg.
“From a cyclical point of view, these four countries could hardly be more heterogeneous,” Hartmut Issel, the head of equity and credit for Asia Pacific at UBS Group AG’s wealth- management unit in Singapore, said by e-mail on Dec. 19. “China is slowing gently but still displaying enviable growth, India is starting to pick up, Brazil is in a protracted bottoming process, while in Russia a recession is likely becoming inevitable.”
More than 13 years after the BRIC moniker entered usage to characterize the four nations as a single economic concept, the connection is breaking down. While markets have been buoyed in India after Narendra Modi scored the country’s biggest election victory in three decades, and in China as authorities take steps to keep annual growth above 7 percent, Russia has been battered by sanctions linked to the crisis in Ukraine and Brazil has grappled with an unprecedented corruption scandal involving its state-run oil company.
Marketing Tool
The Shanghai Composite Index and India’s S&P BSE Sensex Index are both heading for their biggest annual gains in five years as the countries’ leaders push ahead with measures to boost economic expansion. Brazil’s Ibovespa Index entered a bear market this month as plunging commodity prices threatened the nation’s trade surplus, while Russian shares are set for an annual loss as President Vladimir Putin battles with a currency crisis.
While the MSCI BRIC index has returned about 274 percent since O’Neill, a former Goldman Sachs Group Inc. economist who’s now a Bloomberg View columnist, predicted in a 2001 research report that the countries’ share of the global economy would increase, the gauge has fallen about 5 percent this year through the close of Asian markets yesterday.
“At the time BRIC was coined it was useful to describe the broad and increasing importance of the four largest emerging- market economies, but it was never suitable as an investing concept,” Mark Gordon-James, a senior investment manager at Aberdeen Asset Management, which managed $526 billion at the end of September, said in an interview on Dec. 18 from London.
Currency Swings
Companies in Russia and Brazil were the biggest drags on the MSCI BRIC gauge this year. They included OAO Gazprom, the world’s biggest natural-gas company by output; OAO Sberbank, Russia’s largest lender; and Petroleo Brasileiro SA, or Petrobras, the Brazilian state-controlled company at the heart of the graft probe. Tencent Holdings Ltd., China Mobile Ltd. and India’s Housing Development Finance Corp. were the largest contributors to gains.