One of the most successful financial acronyms of recent years is ‘BRIC' (Brazil, Russia, India and China) or 'the BRICs' as a catch-all for emerging market growth opportunities.
Following the publication of a range of manufacturing sector purchasing manager indices today it is possible to construct a composite ‘BRIC manufacturing PMI’. Here’s the raw data:
Country Nov manu PMI Oct manu PM
Brazil 49.7 50.2
Russia 49.4 51.8
India 51.3 49.6
China 50.8 50.9
Simple average 50.3 50.6
An over 50 rating implies expansion but, frankly, 50.3 suggests a severe case of dullness, unsurprising when two constituents are below the 50 ranking…and two are above. If you look at the specifics the combination of difficult export markets and dull domestic conditions are holding back Russia and Brazil. India and China are not that much better but the latter, particularly, has more room for manoeuvre including potential new policy stimulus in 2014. Brazil, by contrast, is raising interest rates whilst an inflationary risk in Russia still exists.
None of the big themes underpinning these four economies have particularly changed. There is still a expansion of the middle class driving consumption trends, urbanisation and rising geo-political influence amongst other factors, but as this latest data shows it is not a one-way trend and certainly not impacting each BRIC country in the same way.
We saw plenty of global companies complain about either emerging market sales or currency translations during the Q3 reporting season, so this dullness is no huge surprise. What matters for investors though is to no longer treat emerging markets as a catch-all, nicely captured by the BRIC moniker. Not only do different emerging markets have different strengths but within each economy divergent trends between different sectors are becoming more and more apparent.
Time to dump ‘BRIC’ as a term but not time to ignore investment opportunities in these countries, not with an average yield of 3.2% and a sub x11 P/E across these four markets (as per Thomson Reuters data). Dull averages often hide interesting specifics.