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January 04, 2014 at 05:47 AM
Emerging markets were supposed to be the panacea to lackluster global economic growth. Instead, they’ve delivered nothing but subpar performance over the past several years.
While stocks from developed countries have gained 15.17% over the past three years, emerging market stocks by comparison have fallen 16.06%.
Is a rebound ahead?
Fearsome Four
Among the largest global emerging economies are the BRICs–an acronym for Brazil, Russia, India, and China. Together, they account for more than 40% of the world’s population.
Some economists estimate BRICs will overtake G-7 economies in GDP by 2027. Another report, released by Goldman Sachs in 2010, estimated the four BRICs may account for 41% of the world’s market capitalization by 2030.
Despite a promising future, BRICs have lost their luster.
In 2013, the iShares MSCI BRIC ETF (BKF) declined 5.30%, putting the BRICs’ performance slightly behind that of the broader Vanguard FTSE Emerging Markets ETF (VWO), which weakened 4.92% last year. China was the only BRIC country to eke out a 2013 gain.
Asia’s Juggernaut
Speaking of China, the country is in the midst of another liquidity crisis, which continues to be downplayed by its officials. A combination of rising interest rates and of the PBOC’s money tightening caused a year-end cash shortage. The interbank rate (the rate banks charge each other for short-term loans) spiked causing investors to worry which banks will default on their loans.
The velocity of China’s growth is slowing, too. China’s non-manufacturing purchasing managers’ index declined to 54.6 last month, its worst showing since August 2013.This is a whole lot less than economists were projecting.
The real action in China has been in the stock market where Shanghai equities have been trading with approximately the same volatility as penny stocks.
