Commodity Online
BRIC (Brazil, Russia, India and China) nations seem to be losing their shine and at the same time underdeveloped `frontier’ markets such as Peru and Jordan are outperforming even the developed markets.
Goldman Sachs in its report said that the growth of BRIC is slowing, but they will still contribute almost half of all global growth in 2008 and 2009.
Since the start of the year, Standard & Poor's (S&P) BRIC 40 Index has lost 8.3 percent while its Global 1200 Index has shed 7.2 percent.
In market turmoil of recent months, less mature markets or Frontier markets represented by Peru, Jordan, Amman, Lima were outperforming on all counts although their rudimentary stock markets are traditionally deemed riskier.
The S&P/IFCG Extended Frontier 150 Index, comprising companies in 30 less developed markets, has proved more resilient, shedding 2.6 percent over the same period
Frontier markets" comprises economies ranging from oil-rich Kuwait to impoverished cocoa producer Ivory Coast.
The performance of Frontier markets is also not uniform, Vietnam, for example was a favourite among frontier market investors in recent years but has seen its stocks lose about 42 percent of their value since the start of the year.
Fund managers say geographical diversification is vital to hedge against the inherent risks of frontier markets investment.
Why BRICs lost out?
Among BRIC stock markets China and India have suffered, falling 35% and 21% in dollar terms respectively. Brazil gained 7%, while Russia has performed roughly in line with the MSCI world index, falling around 6%.
Inflationary pressures in India, Russia and China have contributed to the BRIC misery Russia has the biggest inflation problem at 13 percent.
At the same time, resource rich countries like Brazil and Russia have been immune from the ill-effects of higher commodity prices.
Another reason may simply be that the Chinese and Indian stockmarkets were overheated in 2007 (the Shanghai market more than doubled between February and October last year) and are now suffering an inevitable reaction, according to Economist.
The international magazine has also pointed out that there is little homogenity between the BRIC countries.
China will only slow from 11.9% to 10.5% on Goldman’s numbers—although others are forecasting that the government’s attempts to tackle pollution ahead of the Olympics will slow the economy further.
Russia has the biggest inflation problem of the four (its annual rate was 13% in March) but it also enjoys export growth (measured with a three-month average) of almost 50% a year.
The labour cost in India has risen thus losing the advantage as a cheap cost destination for industry. So now they're more expensive manufacturing bases.
Analysts predict that the frontier markets will grow in the next three to five years as their economies grow and perhaps pose a threat to BRIC.
In a way BRICs performance has outclassed Goldman’s original expectations of 2001 when it said it would 10% of the global output by the end of the decade; they have already reached 15%. But that is not enough for BRIC to stay ahead in the race, analysts said.
