Bric economies have a different mix of local growth drivers, which Allan Conway, head of emerging market equities for Schroders, says can lead to divergent stock market returns.
“Different market conditions can consequently have a different impact on the Bric markets and how they perform can be subject to a complex range of conditions.
“In general terms though, during a period of strong global growth and expanding world trade, the higher beta Bric markets would likely perform well and maybe expected to outperform developed markets.
“This environment would also be expected to result in robust commodity demand and prices, which would clearly benefit Bric via countries like Russia and Brazil.
“Net commodity importers like China and India could also still do well in such an environment if their overall growth is accelerating.
“However, even though absolute growth in Bric is much higher than in the developed world, if the relative rate of change in GDP and earnings growth between Bric and developed is declining, Bric stock markets may underperform.
“This has clearly been a factor in their underperformance in recent years. In particular growth surprises in the US have generally been positive, but in Bric negative. This has also led to a strengthening of the trade weighted US dollar.
“A stronger US dollar often results in tighter monetary policy in the emerging economies and relative stock market underperformance.
“Eventually, however, the emerging and Bric economies benefit from strong global growth, albeit less so in the past. As mentioned above domestic demand is an increasingly important and strong external demand is simply adding to rather than being the key driver of growth.”
Generally if emerging markets are doing well, Ayesha Akbar, portfolio manager in Fidelity’s Investment Solutions Group, said you could expect Brics to be doing well as well as they are a substantial proportion of the overall GEM market.
On the other hand, Ms Akbar says they will also tend to lead the market down as well.
“Generally they tend to be more volatile than other funds, so we would encourage investors to exercise caution when investing here.”
Bric funds only perform well in times when emerging markets generally do well, according to Maarten-Jan Bakkum, senior emerging market strategist of ING IM.
“Bric funds are riskier than global emerging markets funds due to their large exposure to the one theme of China growth and because Russia and Brazil are among the very most volatile emerging markets.
“Bric funds also perform well in times when commodity prices are rising, as Chinese demand is a key driver of commodity prices and Russia and Brazil are two big commodity exporters.”
