India’s less-than-expected second quarter growth figure was disappointing news and its fellow BRIC countries—Brazil, Russia and China—are also facing challenges. What’s in store? The investors weigh in.
Brazil: Political Risk Rising
That Brazilians are so actively clamoring for the impeachment of unpopular President Dilma Roussef could perhaps prove to be a positive development for the beleaguered country in the longer term.
“You could look at it from the standpoint that Brazilians are standing up against corruption and want a government that really represents them,” said ReKeithen Miller, portfolio manager at Palisades Hudson. “In a democracy, there will always be growing pains and people standing in the street and letting their voices be heard is a positive development.”
Support for Rousseff, who won the last presidential election by a sliver, has plummeted according to recent polls. Brazil’s economy is in terrible shape, with inflation skirting close to 10%, its woes compounded by China’s slowdown and the fall in commodity prices.
“It is a positive that Brazil’s institutions are getting stronger and can investigate politicians, but looking toward the future, with policymakers no longer going along with the government’s decisions, the perception of political risk in Brazil is rising a lot more than we anticipated,” said Ben Rozin, portfolio manager at Manning & Napier. “That changes the amount of optimism we can have on the future growth story.”
Market View: “Brazil is cheap, you could make a case for buying it based on value, but it will be a rocky ride,” said Charles Sizemore, CIO of Sizemore Capital Management. “Brazil is in for a prolonged period of choppy instability, so you could say Brazil is a speculative buy based on value, but it won’t be a smooth ride.”
Russia: Status Quo and Stagnation
Investors such as Miller and Rozin have stayed away from Russia on account of the absence of the rule of law, the shabby treatment of minority shareholders and foreign investors and the ongoing geopolitical tensions between Russia and the west.
The commodity price decline hit Russia hard and China’s slowdown has added fresh cause for concern, said Stuart Quint, senior investment manager at Brinker Capital, since Russia has been hoping for investment from China. Quint some level of stagnation for the Russian economy, based on lower commodity prices and also because some companies are starting to cut down on production and even closing down plants. Oil giant Gazprom is even postponing or canceling some of its bigger pipeline projects.