By Dave Kansas
SmartMoney
is difficult for BRIC keep my head down.
Earlier this year, Brazil, Russia, India, China and other emerging markets struggled to get into action. Concerns about inflation, social unrest in the Middle East and North Africa and the tsunami earthquake in Japan together conspired to push investors to the warm and comfortable grip of the developed markets.
But as Japan in the headlines fade and the crisis in the Middle East and North Africa are calm, the BRICs have become stronger than before. HSBC recently upgraded its outlook for China to upper neutral weighting, rose to India to neutral, while maintaining the prospect of higher weighting in Brazil. Is neutral about Russia.
In late March, EPFR, a tracking firm investment reported that stock funds had begun emerging in a terrible year, with expenses of U.S. $ 26,800 million as investors transferred their money to developed markets. The idea then was beguilingly simple: with so much madness around the world, political risk in emerging markets did not make sense.
Things have changed rapidly since then. EPFR reported that in the week ending April 20, emerging market funds attracted more money than those in developed markets, the second consecutive week that saw such results. Inflows to emerging market stocks have been positive four weeks.
But even with the rebound in investment, the BRIC stock performance has been somewhat uneven.
A robust despite a year until the United States, there are five reasons why the BRICs are being released back to the load:
S & P warning on U.S. debt
Critics say S & P is hardly in position to pontificate about the U.S. debt As economic journalist recently wrote Barry Ritholtz in his blog: "If there was ever a more corrupt, incompetent and less able to deliver an intelligent analysis on S & P debt, do not know. "
Despite this severe trial, the decision of S & P to review the prospect of long-term debt to negative from stable U.S. highlighted a stark reality. The U.S. fiscal outlook is bleak and the political environment in Washington is not suitable for long-term solutions. Although U.S. exchanges have recovered, doubts about debt and the prospect of the U.S. deficit has increased. The prices of gold and silver have soared to unprecedented levels following the report of S & P and the dollar has weakened dramatically. If the U.S. faces problems, it makes the political risk in the BRIC countries and other emerging economies look less problematic.
A weaker dollar
The weakening U.S. currency makes bets on as the BRIC markets are inherently more attractive to investors, as gains in local markets get a boost in dollars when they are changed to greenback.
And it seems that the dollar will strengthen soon. The U.S. Dollar Index last week hit a minimum of three years and net short positions as reported by the Commerce Commission Commodity Futures Trading Commission (CFTC, for its acronym in English) show that speculators have their biggest bet against the dollar since 2007.
At a recent meeting, the BRIC countries were again called for an alternative reserve currency, and some of the bloc's countries have even pondered the creation of a currency in the BRICs. These are notions usually associated with ascending countries.
European debt problems have become
Across the ocean, Easter talks momentarily silenced the Greek debt restructuring, but the issue is with us now. The eurozone is dealing not only with Greece but also with Ireland and Portugal, highly indebted countries.
in the area, the various bailouts discontent is rising, especially in Germany, Austria and Finland. The recent elections in Finland raised a party, True Finns (which roughly translates as True Finns), he does not want more taxpayer money allocated to various rescues.
The problematic situation of the euro, and the S & P warning on the dollar, is a reminder that the developed world is not without political risk.
rates growth of the BRICs are skyrocketing
While U.S.and Europe are trying to encourage their economies after the financial crisis, the BRIC countries are making progress, especially China and India. "The global financial crisis hit hard in Asia," Deutsche Bank wrote recently. "But the recovery was swift. It only took five quarters to return to the bargaining level before the crisis."
Deutsche's forecast for growth in 2011 for the BRICs is as follows: China, 9.4%, India 8.2%, Russia 5.4% Brazil 3.6%. The International Monetary Fund projections are slightly different (See box). As the journalist Brett Arends pointed out recently in the financial information website MarketWatch, the IMF predicts China's economy will surpass that of U.S. in real terms in 2016, which is not far. As Brett argues: "Just 10 years ago, the U.S. economy was three times the size of China."
Oil prices have risen. This helps mainly with "R" in BRIC, and could in fact create headwinds for BIC countries. But Russia, which is probably the BRIC inserted so that the name sounds best, is, however, part of this block, and its economy is largely correlated with oil prices.
President of Goldman Sachs Asset Management, Jim O'Neill, who coined the term BRIC, noted in a recent report that Russia is giving positive signals that could boost its economy. "I still believe that Russia is probably the most attractive stock price between the BRIC countries, because it is cheap and because the marginal political processes are much more positive than recognized by most people," wrote O'Neill.
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