Hong Kong/New York: The BRICs are falling off the investment map.
The term for Brazil, Russia, India and China, where stocks gained 424% during the decade ended 2010, appeared in the fewest news stories last month since November 2008, according to data compiled by Bloomberg. BRIC searches on Google Inc.’s website fell to a seven-year low in December, while mutual funds that invest in the biggest emerging markets had outflows in 46 of the past 47 weeks.
Investor euphoria has turned into apathy after the four economies grew at the slowest pace since 2009 and the MSCI BRIC Index trailed world markets for a third straight year. The man who came up with the BRIC moniker—Goldman Sachs Group Inc.’s Jim O’Neill—announced his retirement this week.
“It looks like investors, certainly the trend-following types, have lost interest,” O’Neill, who will step down as chairman of Goldman Sachs’ asset management unit this year after about 18 years at the New York-based bank, said in a 5 February phone interview.
O’Neill, 55, introduced the BRIC concept in a 2001 research report predicting that the countries’ share of the global economy would increase. His colleagues at Goldman Sachs estimated two years later that the nations may join the US and Japan as the world’s biggest economies by 2050.
The bullish outlook proved prescient as the BRIC countries grew at an average annual pace of 6.6% from 2001 to 2010, nearly twice as fast as the global economy, according to the International Monetary Fund (IMF) in Washington. China is now the world’s second largest economy in dollar terms, while Brazil is No. 7, Russia is No. 9 and India is No. 10, IMF estimates for 2012 showed in October.
Goldman Sachs’ prediction helped unleash a flood of money into the BRIC countries. Investors poured about $15 billion into mutual funds that buy stocks in all four nations, along with another $52 billion into funds dedicated to individual members of the group, from 2001 through 2010, according to Massachusetts-based research firm EPFR Global.
“The name stuck. Investors wanted something that was simple,” Christopher Palmer, who oversees about $2.5 billion as the London-based director of global emerging markets at Henderson Global Investors Ltd, said by phone on 5 February. “BRIC is a nice marketing concept, and it sounds quite solid, like a brick.”
The MSCI BRIC index’s 424% return through 2010, including dividends, compares with a 44% gain for the MSCI All-Country World Index and 350% for the MSCI Emerging Markets Index. That means $10,000 invested in the BRICs grew to about $52,400 during the period.
Now, the nations’ shares are lagging behind as their economic growth advantage shrinks and investors shift money to smaller emerging markets, including Turkey and the Philippines. Gross domestic product in the BRICs probably increased 4.2% on average in 2012, versus 3.2% for the world economy, according to the IMF. The 1 percentage point gap would be the smallest since 1998.
The MSCI BRIC index lost 9.2% from the end of 2010 through Thursday, compared with a 2.4% slide in MSCI’s emerging market index and a 13% advance in the MSCI All-Country gauge. The four-nation measure is up about 2.2% this year, versus a 4.3% increase in the global index.
Brazil, Russia, India, China and BRIC funds have recorded combined outflows of about $8.3 billion since 2010 even as those investing in global emerging markets had inflows of $70 billion, EPFR Global data shows.
“The BRICs have now become unfashionable,” John-Paul Smith, an emerging markets strategist at Deutsche Bank AG in London who predicted the underperformance of BRIC shares in 2011, said in a report emailed on 24 January.
O’Neill disagrees. “Fading interest in the countries is a contrarian indicator that may foreshadow world-beating equity returns this year as China’s economy recovers,” he said. Bloomberg
Lyubov Pronina and Simon Kennedy in London, Belinda Cao in New York, and Peter Millard in Rio de Janeiro contributed to this story.