BRICs Busted as Stocks in Russia, Brazil Crash

Outlook on Chindia Bright in 2015

The BRIC grouping of Brazil, Russia, India and China has never looked so disunited to stock investors.

While Chinese and Indian benchmark equity indexes have surged an average 40 percent this year, Russian and Brazilian gauges posted a mean drop of 4.2 percent.

“From a cyclical point of view, these four countries could hardly be more heterogeneous. “China is slowing gently but still displaying enviable growth, India is starting to pick up, Brazil is in a protracted bottoming process, while in Russia a recession is likely becoming inevitable.”

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The Shanghai Composite Index and India’s S&P BSE Sensex Index are heading for their biggest annual gains in five years as the countries’ leaders push ahead with measures to boost economic expansion. Brazil’s Ibovespa Index entered a bear market this month as plunging commodity prices threatened the nation’s trade surplus, while Russian shares are poised for an annual loss as President Vladimir Putin battles with a currency crisis.

Currency Swings

Companies in Russia and Brazil were the biggest drags on the MSCI BRIC gauge this year. They included OAO Gazprom, the world’s biggest natural-gas company by output; OAO Sberbank, Russia’s largest lender; and Petroleo Brasileiro SA (PETR4), or Petrobras, the Brazilian state-controlled company at the heart of the graft probe. Tencent Holdings Ltd. (700), China Mobile Ltd. (941) and India’s Housing Development Finance Corp. were the largest contributors to gains.

Russia’s Micex slid 3.6 percent in Moscow, heading for its biggest drop since March. The Sensex lost 0.2 percent, while the Shanghai Composite dropped 0.1 percent at the close from its highest level since January 2010.

Currency volatility has played havoc with foreign investor returns. While China’s yuan and India’s rupee have fallen less than 4 percent versus the dollar this year, the Brazilian (IBOV) real has lost 13 percent and the rouble has slid more than 40 percent.

The combined market capitalization of Chinese and Indian stocks rose to a record $6.4 trillion this month, while Brazil and Russia together slumped to $1.2 trillion, the lowest since at least 2005

Subsidy Cuts

Chinese President Xi Jinping, who pledged to give markets a “decisive” role in the $9 trillion economy after coming to power last year, has allowed private investors to take stakes in state-owned firms and started a stock trading link with Hong Kong. Modi, his Indian counterpart, has cut fuel subsidies, allowed more foreign investment in businesses such as defense and promised to narrow the budget deficit.

In Brazil, the corruption scandal at Petrobras, where hundreds of millions of dollars from contracts at the company went to executives, contractors and political parties, according to prosecutors and witnesses, threatens to undermine the political clout of President Dilma Rousseff, who was re-elected in October.

Oil Tumble

Falling oil and metal prices may boost economic growth and lower inflation in India and China, two of the world’s three biggest importers of crude in 2013. Commodities account for roughly half of Brazil’s exports, while Russia’s government gets about 50 percent of revenue from energy industries.