The South Americans are dominating possession. And it’s not only on the football pitch.
Net flows at Brazilian equity mutual funds have been positive for 11 out of the 12 months to end-May, according to estimates from Lipper, leading to total net inflows over the period of about $13 billion. That stands in stark contrast to the other three BRIC emerging market powerhouses.
China equity funds have waved goodbye to almost £3 billion in that time, Russia a similar amount and India $4 billion. India equity funds have seen 12 straight months of net outflows, Russia 10 out of 12 and China nine out of 12. The graphic below makes the trend clear, with Brazil the only BRIC to show net inflows to equity funds in eight of the 12 months examined. (A brief note on India: the reporting timetable of locally-domiciled funds means that these numbers are largely from funds based outside the country, which account for about half of assets)
It looks like a huge bet on Brazil just as persistent protests over corruption and public services bring on some big match nerves. The cost of insuring Brazilian debt through credit default swaps (CDS) hit 20 month highs last week at 204 basis points, according to Markit.
The net inflows have also come during a year when the stock market has underperformed broader emerging markets on the prospect of inflation and fears of government intervention in the private sector (see the graphic below). That would give the investors who have piled in little chance of a profitable exit while they watch running battles in the street and read about hikes in inflation predictions and cuts to GDP forecasts.