After eager investors rushed in to Brazil, Russia, India, China funds (BRIC), many pulled back, particularly disappointed by performance in China and Russia.
But those countries are enjoying renewed interest from value investors, according to Dow Jones.
While India and Brazil have delivered returns of between 10% and 15%, China and Russia have lagged behind, with China up 2.5% and Russia down by 5%, pulling down BRIC indexes.
In fact, year to date, the MCSI BRIC index has risen about 4.9%, compared to 8.1% for the overall emerging markets index.
“It’s really a mixed story so far this year,” said Bob von Rekowsky, who manages the Fidelity Emerging Markets Fund.
At the same time, some value investors are bottom-feeding off of China stocks while managers expect Russia to rebound.
Russia’s risks center around the prices of gas and oil. But managers say the company is poised well for long-term growth over the next decade or so.
“They’ve been using their oil and gas profits to put a lot of money into infrastructure and financial systems,” said Thomas Gerhardt, who manages the DWS Invest BRIC Plus fund.
Seventy percent of corporate earnings in Russia derive form oil and gas, and Gerhardt says prices are likely to remain high. Still, he warned, these bullish predictions are heavily reliant on commodities.
Christian Deseglise, who heads global emerging markets for HSBC, notes that politics will play a part in Russian markets this year, but he still remains confident in a come-back.
“All of the country’s debt, from sovereign government to corporate, is now more than covered by its international reserves,” he said. “Russia is basically awash with money.”
In China, stock prices are recovering after a steep February sell-off, which came in response to regulator’s movement to pop a market bubble. With a cost to earnings ratio of 1:14, Degseglise considers China a better value than U.S. stocks.
The best opportunities, he said, are those Chinese stocks listed in Hong Kong markets.
“We do expect to see more interest rate hikes and breaks to be put on lending in China. But we won’t believe there will be a hard landing in the Chinese economy,” he said.
By 2010, HSBC expects China to surpass Germany, becoming the world’s third-largest market.
This year Degseglise expects Chinese corporate profits to rise, on average, about 20%. What’s more, he expects similar growth in 2008. “The government is taking some measures to cool its economy. But it remains very strong based on domestic consumption, as retail sales are rising at about 15% per year,” Deseglise said.
At the same time, analysts expect India and Brazil to continue to perform well.
In Brazil, exports and inflation are adding to international interest, while local economies are benefiting from dipping interest rates and surpluses.
Home building in Brazil is also picking up, while infrastructure continues to improve.
In 2008, the market should trade at 10 times earnings, according to Gerhardt.
In India, growth should stay at between 8% and 10% per year, according to Deseglise, “The only cloud we see is inflationary pressures,” he said. Recent interest hikes by the central bank surprised many, he said.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.