Exclusive outtakes from industry leaders
from Global Investing:
BRIC is Brazil, Russia, India, China -- the acronym coined by Goldman Sachs banker Jim O'Neill 10 years back to describe the world's biggest, fastest-growing and most important emerging markets. But according to Albert Edwards, Societe Generale's uber-bearish strategist, it also stands for Bloody Ridiculous Investment Concept. Some investors, licking their wounds due to BRIC markets' underperformance in 2011 and 2010, might be inclined to agree -- stocks in all four countries have performed worse this year than the broader emerging markets equity index, to say nothing of developed world equities.
For years, money has chased BRIC investments, tempted by the countries' fast growth, huge populations and explosive consumer hunger for goods and services. But Edwards cites research showing little correlation between growth and investment returns. He points out that Chinese nominal GDP growth may have averaged 15.6 percent since 1993 but the compounded return on equity investments was minus 3.3 percent.
But economic growth -- the BRIC holy grail -- is also now slowing. Data showed this week that Brazil posted zero growth in the third quarter of 2011 compared to last year's 7.5 percent. Indian growth is at the weakest in over two years. In Russia, rising discontent with the Kremlin -- reflected in post-election protests -- carries the risk of hitting the broader economy. And China, facing falling exports to a moribund Western world, is also bound to slow. Edwards goes a step further and flags a hard landing in China as the biggest potential investment shock of 2012. "Yet investors persist in the BRIC superior growth fantasy...If growth does matter to investors, they should be worried that
things seem to be slowing sharply in the BRIC universe," he writes.
Thomson Reuters data earlier this year appeared to show some disenchantment with the BRIC concept. After rising 1600-fold between 2003 and 2007, assets in BRIC funds had shrunk to $28 billion by August 2011, almost a quarter below 2007 peaks, a bigger fall in percentage terms than most other fund categories.
Forget China, at least for now. That “B” in BRICs is really gaining momentum. Many investment managers attending the “Reuters Investment Outlook Summit 2010″ in New York this week mentioned Brazil as a hot destination to park money next year.
There is a growing perception among decision makers that Brazil is on the right track for dynamic growth.
Pimco’s founder Bill Gross, who helps oversee $940 billion in fixed-income securities, says both China and Brazil have big domestic markets with relatively low consumption levels, around 30 percent of GDP, and still room to grow.