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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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.

Brazil Proving Positive

Brazil’s economy is showing signs it’s climbing out of its two-year recession, and international investors are snatching up the country’s stocks.

Economic activity in Latin America’s largest country grew at its fastest pace since 2010, according to a central bank indicator. The IBC-Br index rose 1.31 percent in February, the bank said Monday, after an upwardly revised increase of 0.62 percent in the previous month.

“The economy will likely get to the end of this year with a meaningful growth rate,” Finance Minister Henrique Meirelles said in Brasilia on Monday.

It’s not just Brazilian officials who have high hopes for Brazil’s economy this year, however.

Investors have also jumped on the bandwagon, pushing the iShares MSCI Brazil Capped ETF (EWZ) more than 11 percent higher this year, handily outperforming the S&P 500. The ETF rose more than 2 percent Monday and was on track to post its best session since March 15.

The Brazilian Real is also rising against the U.S. dollar this year, advancing more than 4.5 percent. The currency also popped 1.3 percent Monday.

Brazil’s most recent economic uptick comes at a time when the U.S. economy is showing signs of a slowdown.

The Labor Department said Friday that consumer prices fell 0.3 percent in March, marking the biggest drop since January 2015. Also Friday, the Commerce Department said retail sales dropped 0.2 percent last month, more than expected.

Cheerio.

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