New York: Chinese and Brazilian stocks are likely to emerge strong performers in 2009, bolstered by aggressive government stimulus plans, even as the global financial crisis mauls markets worldwide.
Going strong: Chinese premier Wen Jiabao. Although China did not announce any additional stimulus, Wen reaffirmed his country’s growth target, saying it was still realistic for the economy to expand 8% this year. Jason Lee / Reuters
They have, in fact, already become one of the biggest surprises so far this year, significantly outperforming the main US stock indexes, a performance that underscores the shift in sentiment surrounding these once very risky markets.
“The case for optimism comes from the fact that these countries entered today’s global crisis with better initial conditions,” Mohamed El-Erian, chief executive at Pacific Investment Management Co. Llc., the world’s biggest bond fund manager, said in an interview on Friday.
“That’s partly as a result of their regulatory and policy reactions to earlier regional crises,” El-Erian said, adding that these markets could easily outperform US stocks.
The Chinese government has announced a package of measures worth more than 4 trillion yuan (Rs30.68 trillion) to bolster domestic demand.
For its part, Brazil has increased by 142.1 billion reais (Rs3.14 trillion) the size of a multi-year investment plan launched by the government in 2007. The programme now totals 646 billion reais in investment through 2010.
Markets have rewarded the stimulus measures so far. The Shanghai Composite index has risen 19.6% far this year, while Brazil’s benchmark Bovespa index has lost only 1.2%.
By contrast, the Dow Jones Industrial Average is down 24.5% this year while the Standard and Poor’s 500 index has lost 24.3%.
If that were not enough, the MSCI World index and the MSCI Emerging Markets index have lost 23.2% and 7.8%, respectively, in the same period.
Speculation that China would double the size of its stimulus package was enough to send global markets soaring last week.
The rally later fizzled out because no additional stimulus was announced, but premier Wen Jiabao reaffirmed the government’s growth target, saying it was still realistic for the Chinese economy to expand 8% this year.
The aggressive stimulus efforts are an attempt by both China and Brazil to boost domestic consumption and offset an unavoidable plunge in exports—which provided a crucial tailwind for most emerging economies in recent years.
A larger-than-expected global recession, in fact, is now the biggest risk for the performance of Chinese and Brazilian markets, surpassing traditional political risks that often plague emerging countries.
China’s export-oriented model will not change overnight, but its growing domestic demand should also support Brazil, which has the Asian nation as its third largest trading partner after the US and Argentina, said Rob Balkema, portfolio analyst at Russell Investments.
“Those are large countries with a better economic situation right now. If you look at GDP (gross domestic product) forecasts for 2010 for Brazil, China and even India, forecasts are still quite strong,” said Balkema.
He was referring to three of the four countries forming the Bric group, which also includes Russia.
The International Monetary Fund forecasts China’s economy will grow 8% in 2010, while Brazil would expand 3.5% next year.
Moreover, large emerging economies such as China and Brazil will likely lead global growth within the next few years if they can keep expanding near current levels while the developed world struggles to emerge from recession.
Jennifer Ablan contributed to this story.