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from Global Investing:

Emerging markets funds shun Brazil, South Africa

Global emerging markets equity funds have cut average weightings to Brazil and South Africa for the fourth straight quarter, according to the latest allocations data from fund research firm Lipper.

You can see a full interactive graphic of the allocations data here or by clicking on the snapshot below.

The average allocation to Brazil has fallen by 1.75 percentage points over the past year to stand at 11.6 percent of portfolios by the end of the April-June 2013 quarter. South Africa's average weighting has fallen to 6.0 percent from 7.3 percent in the second quarter of 2012.

The data comes from about 400 GEM funds for which Lipper has recent allocations data. At the last count they held combined assets of $175 billion. GEM funds offer a useful gauge of investor sentiment around emerging markets as they can generally allocate money across the sector.

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.

from Global Investing:

Emerging markets facing current account pain

Emerging markets may yet pay dearly for the sins of their richer cousins. While recent financial crises have been rooted in the United States and euro zone, analysts at Credit Agricole are questioning whether a full-fledged emerging markets crisis could be on the horizon, the first since the series of crashes from Argentina to Turkey over a decade ago. The concern stems from the worsening balance of payments picture across the developing world and the need to plug big  funding shortfalls.

The above chart from Credit Agricole shows that as recently as 2006, the 34 big emerging economies ran a cumulative current account surplus of 5.2 percent of GDP. By end-2011 that had dwindled to 1.7 percent of GDP. More worrying yet is the position of "deficit" economies. The current account gap here has widened to 4 percent of GDP, more than double 2006 levels and the biggest since the 1980s. The difficulties are unlikely to disappear this year, Credit Agricole says,  predicting India, Turkey, Morocco, Tunisia, Vietnam, Poland and Romania to run current account deficits of over 4 percent this year.

from Global Investing:

EM growth is passport out of West’s mess but has a price, says “Mr BRIC”

Anyone worried about Greece and the potential impact of the euro debt crisis on the world economy should have a chat with Jim O'Neill. O'Neill, the head of Goldman Sachs Asset Management ten years ago coined the BRIC acronym to describe the four biggest emerging economies and perhaps understandably, he is not too perturbed by the outcome of the Greek crisis. Speaking at a recent conference, the man who is often called Mr BRIC, pointed out that China's economy is growing by $1 trillion a year  and that means it is adding the equivalent of a Greece every 4 months. And what if the market turns its guns on Italy, a far larger economy than Greece?  Italy's economy was surpassed in size last year by Brazil, another of the BRICs, O'Neill counters, adding:

"How Italy plays out will be important but people should not exaggerate its global importance.  In the next 12 months the four BRICs will create the equivalent of another Italy."

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