Growth again Brics’ driv­ing force

The fastest-grow­ing emerg­ing economies are back on track, ac­cord­ing to lat­est data

The Star Early Edition - - BUSINESS REPORT / INTERNATIONAL - Bloomberg

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, China and South Africa – push­ing monthly in­flows and stock prices to nearly two-year highs. The bet is that a pick up 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, sta­bil­is­ing 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 to 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 yield­starved 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 (R5.33 tril­lion) in as­sets, wrote in an e-mail.

Non-res­i­dent port­fo­lio flows into Bric na­tions rose to $166.5bn last month, up from $28.3bn 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, data show.

Mark Mo­bius, ex­ec­u­tive chair­per­son of Tem­ple­ton Emerg­ing Mar­kets Group, favours 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 $12bn 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, “Bric” be­came a ubiq­ui­tous short­hand for the fastest-grow­ing emerg­ing economies (other in­vestors later added South Africa to the mix).

In the decade end­ing De­cem­ber 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 shut its Bric fund in Oc­to­ber 2015 af­ter los­ing 88 per­cent of its as­sets since a 2010 peak.

Ear­lier this year, Gold­man sig­nalled its par­tial re­turn, urg­ing in­vestors to “stay the course” with a bet on cur­ren­cies from Brazil, Rus­sia and In­dia. Mean­while, O’Neill, who later served as com­mer­cial sec­re­tary to the UK Trea­sury, 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.

In In­dia, mea­sures de­signed to fuel growth and in­vest­ment spear­headed by Prime Min­is­ter Naren­dra Modi could re­make the world’s sec­ond-most pop­u­lous na­tion into one of the more dy­namic mar­kets over the next sev­eral years, ac­cord­ing to Charles Knud­sen, who helps over­see $16.5bn in emerg­ing-mar­ket as­sets for T Rowe Price Group from Bal­ti­more.

The coun­try is ex­pected to re­claim its crown from China as the world’s fastest-grow­ing large econ­omy over the next three years.

South Africa’s Foreign Min­is­ter Maite Nkoana-Masha­bane looks at China’s Foreign Min­is­ter Wang Yi as she speaks at a press con­fer­ence dur­ing the Brics foreign min­is­ters meet­ing in Bei­jing, yes­ter­day.

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