Funds Hub

Money managers under the microscope

from Global Investing:

No BRIC without China

Jim O' Neill, creator of the BRIC investment concept, has been exasperated by repeated calls in the past to exclude one or another country from the quartet, based on either economic growth rates, equity performance or market structure. In the early years, Brazil's eligibility for BRIC was often questioned due to its anaemic growth; then it was the turn of oil-dependent Russia. Over the past couple of years many turned their sights on India due to its reform stupor. They have suggested removing it and including Indonesia in its place.

All these detractors should focus on China.

China's validity in BRIC has never been questioned. Aside from the fact that BRI does not really have a ring, that's not surprising. China's growth rates plus undoubted political and economic clout on the international stage put  it head and shoulders above the other three. And after all, it is Chinese demand which drives a large part of the Russian and Brazilian economies.

But its equity markets have not performed for years.

This year, Russian and Indian stocks are up around 20 percent in dollar terms while China has gained 9 percent and Brazil 3 percent. In local currency terms however China is among the worst performing emerging markets, down 5 percent. Brazil has risen 9 percent.

Over the past five years, MSCI China. which makes up 40 percent of the BRIC index, has lost 18 percent, Thomson Reuters data shows.  That has pushed the broader BRIC into a negative return of almost 10 percent in this period.

Through a glass darkly

Photo

The fund of hedge funds concept took a serious knock last year with Bernard Madoff’s $65 billion fraud, leading high net worth investors to pull out money over concerns that the due diligence hadn’t been quite as diligent as one would hope.

Even managers who weren’t exposed to Madoff had to calm client fears. This has prompted the bigger, more institutional groups to seek ways of gaining more control over assets that the underlying managers are running.

  •