Much has been talked about ever since Jim O’Neill, head of global economic research for Goldman Sachs, gave Brazil, Russia, India and China, the nickname BRIC in his 2001 report on emerging markets. He had argued that by 2050 the combined economies of these four countries would overtake the richest countries of the world.
Since then, stock markets of BRIC nations were the darling of global investors, and made huge progress and outperformed the most.
Major fund houses launched schemes based on BRIC economies to attract investors and generate generous return that was very difficult in those days.
Investors poured in money, as the new theme attracted them.
But it seems that era is over.
Investors’ appetite for emerging markets is waning. According to EPFR, investors have pulled $22.7 billion out of emerging-market stock funds in the five weeks that ended on Wednesday.
Emerging-market bond-fund managers saw outflows of $5.6 billion in the latest week, a record since at least 2004, when EPFR first starting tracking weekly flows.
Recent outflows leave just over $1 trillion in emerging market stock funds, and come just after the total assets hit a record $1.09 trillion in May, the global fund tracking firm said.
In India, overseas funds sold a net $1.76 billion of domestic stocks this month through June 27, the highest since the $2.1 billion withdrawn in August 2011, data compiled by Bloomberg show.
While among BRIC nations, Indian stock market gave out a flat return so far in 2013; others such as China, Brazil and Russia fell 11 per cent, 22 per cent and seven per cent, respectively. In contrast, the Dow Jones Industrial Average surged 15 per cent, S&P-500 14 per cent and tech-focussed jumped 13.5 per cent. UK’s FTSE and DAX were also produced a strong return of 8.5 per cent and 4.5 per cent, respectively.
According to Goldman Sachs, the decade-long outperformance of developing-nation assets has ended.
Russell Investments said most money managers who were bullish in its December survey, are now growing ‘disillusioned’ on emerging markets.
The five trends that spurred outsized gains during the past 10 years — surging growth in the so-called BRIC nations, higher commodities, improved Government finances, slower inflation and lower US bond yields — are halting and in some cases reversing, Dominic Wilson, chief markets economist at New York-based Goldman Sachs, wrote in a recent report.
So is that the party over for BRIC nations?
Not really, says stock market winners. According to Mark Mobius, Chairman of Franklin Templeton Emerging Markets, more ‘bargain’ buying will emerge, and insists any further weakness is an ‘opportunity’ to buy.
Some others suggest buying quality companies — big global names that have good balance sheets, high returns on equity, the ability to improve margins and rising global market share.
However, as Dominic Wilson said, while cyclical opportunities will come and go, the era of ‘structural outperformance’ for emerging markets is probably over.
Over the next decade, emerging market assets are unlikely to deliver the kind of risk-reward that investors had become used to in the last one.
So it is prudent to keep a realistic return than an overambitious target.