BRIC markets lead the surge

India stands at 10th place with 87% return in 2009.

The BRIC magic has worked this calendar year too with all four countries – Brazil, Russia, India and China – placed among the top 15 in the performance table.

Brazil’s Bovespa index has returned 142 per cent in dollar terms since the beginning of this year and is placed at the top of the returns table containing leading global benchmarks. Russia’s RTS Index comes third with 121 per cent return. India’s Sensex is placed at the tenth spot with 87 per cent gains and China’s Shanghai Composite Index is in the fourteenth place with 74 per cent.

China’s benchmark has slipped five places from the ninth position it was at, towards the end of last week following the sell-off in Chinese stocks this week after their banking regulator asked Chinese banks to improve their capital adequacy ratios.

It is not just the BRIC markets but the entire emerging market universe that has returned stellar gains this year. The indices yielding 3-digit returns and placed among the top ten gainers among global benchmark indices include Peru Lima Index, Jakarta Composite Index and Argentina’s Merval index.

Developed Market indices have yielded relatively lower returns with the Dow returning only 19 per cent this year and the UK’s FTSE and Germany’s DAX returning less that 40 per cent.

The gains in BRIC markets was driven by global funds moving in to these equities once the dollar began its steep decline since April this year. With the waning of fears of a prolonged global recession from the second quarter of 2009, risk appetite returned; leading money back to riskier asset classes such as emerging market equity.

The rapid economic growth envisaged in the BRIC economies in the years ahead has also been a strong factor in attracting funds. IMF, in its world economic outlook has noted that after contracting by about 1 per cent in 2009, global activity is forecast to expand by about 3 per cent in 2010.

The rebound is to be driven by China, India and a number of other emerging Asian countries. Organization for Economic Co-operation and Development (OECD) has echoed this sentiment in its semi-annual outlook, expecting China and India and Brazil to grow by 10-, 7- and 5 per cent in 2010. The report expects Russia’s turnaround to be even more dramatic.

Strength in the currencies of Brazil, India and Russia since March has also been an incentive for foreign funds, since their returns are enhanced by currency gains. Brazilian ‘Real’ has appreciated 26 per cent this year while the Indian Rupee is up 4 per cent.

The out-performance of emerging markets and the BRIC quartet in 2009 is also due to the fact that their equity markets had a relatively benign first quarter. Most of the emerging market benchmarks including India did not re-test their October 2008 lows, while the Dow dived 26 per cent in the first three months before turning around.