BRICS Back

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’s 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 2016 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 $417 billion in assets, wrote in an email.

Non-resident portfolio flows into BRIC nations rose to $166.5 billion last month, up from $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.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, 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 $12 billion of assets as an emerging-market money manager at Newfleet Asset Management.

Fastest Growth

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.

Cheerio

Mt Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

 

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Neighbours Slam Door On Qatar

Qatar’s markets received a battering as four of the country’s Middle East neighbors cut ties in a row over its stance on Iran and Islamist extremists.

The nation’s dollar bonds tumbled and contracts used to bet the Qatari riyal will weaken surged the most since 2009. More than two-and-a-half times the daily average of shares changed hands on the key stock index in Doha, where many Muslims are fasting for the holy month of Ramadan, as the gauge slipped the most in more than seven years. With Monday’s selloff, the country’s main equity benchmark became the worst performer globally this year.

 

The disagreement marks an unprecedented low in the relationship between the Arab nations, and for relations in the six-nation Gulf Cooperation Council in particular. It’s a stark reminder to investors of the potential volatility and geopolitical risks associated with the region, at a time when markets like Saudi Arabia and Egypt are intensifying efforts to lure foreign cash.

“For people that don’t know the region very well, they have an image of the Middle East, including the GCC, to be a somewhat unstable region, and I think this maybe confirms what they had feared,” said Tarek Fadlallah, chief executive officer of Nomura Asset Management Middle East. “For those who are familiar with the region, it will be unsettling, but maybe not critical in how they look on making investments for the foreseeable future.”

Yields on Qatar’s $3.5 billion in bonds due 2026 increased 23 basis points to 3.366 percent, the highest level since March.

 

Twelve-month forward contracts for the riyal jumped as much as 203 points to 405 points, the highest level in more than a year, indicating increased bets Qatar could devalue its currency. The contracts traded at 350 by 2:09 p.m. in Doha, up 148 points on the day. The riyal is pegged at 3.64 per dollar.

The country’s QE stock index fell 7.3 percent by the market close on Monday in Doha. Qatar Gas Transport Ltd., Aamal Co, Qatari Investors Group QSC and Gulf International Services QSC dropped by the maximum of 10 percent allowed by the exchange. Six other companies on the country’s 19-member main index dropped between nine and 10 percent, including lender Masraf Al Rayan QSC, which contributed the most to the index move. Qatar National Bank, which has a weighting of 17.9 percent in the index, fell 6 percent.

The benchmark is the worst performer globally this year, posting losses of 12 percent while shares from emerging markets gained more than 18 percent.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Trouble Down South

Brazil’s Bovespa stock market was briefly halted as investors reacted to corruption allegations against Brazilian President Michel Temer.

Stocks plunged more than 10% at the start of trading, prompting circuit breakers to kick in and halt dealings.

President Temer was forced to deny a newspaper report that he had given consent to paying off a witness in a huge corruption scandal.

The Supreme Court has authorised an investigation into the allegations.

On Thursday Mr Temer said in a TV statement: “I never authorised any payments for someone to be silent. I did not buy anyone’s silence. I fear no accusations.”

“I have nothing to hide. I never authorised anyone to use my name”

“We cannot throw so much hard work [on reforms] done for our country in the rubbish bin.”

“I will not resign. I will not resign. I know what I have done.”

Investors are concerned that Mr Temer’s reform plans could be derailed. The Ibovespa index closed more than 8.8% down at 61,575 points.

Mr Temer is trying to get pension reforms through Congress that would mean men would have a minimum retirement age of 65, and women 62, and most people would contribute more. There is currently no minimum retirement age.

There are also labour reforms on the cards to weaken trade union bargaining powers and make hiring and firing workers easier.

“I’ve never seen anything like this”, said one trader with decades of experience.

Trading was delayed in Sao Paulo’s stock exchange and once it opened, the circuit breaker stopped all operations within just a few minutes. That has not happened since the global financial crisis of 2008.

In a fortnight Mr Temer was about to start pushing his economic reform plan through Congress.

Until Tuesday markets were very optimistic – but now many don’t see how Mr Temer can keep his job if the allegations about a tape in which he condones a bribe payment are true.

What happens next? If Mr Temer keeps his job, he will need a Herculean effort to get Congress behind him again. If not, the Brazilian Congress will have to chose a new president indirectly.

Getting reforms approved is no longer a top priority for a country still in deep crisis.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.