BRIC Markets Sink to Worst Place for Investors in Poll

The largest developing nations for the first time have the worst market opportunities as optimism for stronger growth shifts to the U.S. and Europe, according to a Bloomberg Global Poll.

India fared the poorest, followed by Brazil, Russia and China, a worldwide poll of investors, analysts and traders who are Bloomberg subscribers showed this week. The number of respondents who see the European Union as one of the two best opportunities rose to 34 percent, its best showing in the poll dating to 2009, with the U.S. at 51 percent.

Prospects of diminished global liquidity from cuts in U.S. Federal Reserve bond buying have sparked the biggest emerging-market currency selloff in five years, with the Indian rupee and Turkish lira hitting record lows. The rout spotlights challenges including credit overreliance in China and low investment in Brazil, part of the BRIC group with India and Russia.

“The BRICs will always be playing second fiddle to the developed economies,” said survey respondent Ben Kelly, an analyst at Louis Capital Markets in London. “The pro-growth monetary policy of the U.S. allowed emerging countries to thrive due to very low or negative real rates,” he said, referring to borrowing costs adjusted for inflation.

Now that the U.S. and “to a certain extent Europe are beginning to stabilize, maybe part of this trade may unwind and we have seen that already in the bond markets,” Kelly said.

Growth Engines

Developed economies are turning into global growth engines as some emerging-market counterparts decelerate, the International Monetary Fund said in a report for Group of 20 leaders this month. The euro-area economy is emerging from the longest recession on record and U.S. growth last quarter surpassed analysts’ expectations.

The quarterly survey of 900 Bloomberg customers was conducted Sept. 10, four days after G-20 countries repeated their concern that stimulus pullback in developed nations may prove damaging to global markets. Chairman Ben S. Bernanke has said the central bank is targeting to end the purchases by the middle of next year if growth is in line with its estimates.

Brazil and Indonesia have embarked on a series of rate increases to buoy the real and rupiah, while the Indian central bank took steps to boost the supply of dollars to alleviate depreciation pressure on its currency. The BRIC countries along with South Africa pledged this month in St. Petersburg to create a $100 billion pool of currency reserves to guard against shocks from the withdrawal of stimulus.

Best Market

Brazil was cited by only 10 percent of survey participants as the No. 1 or No. 2 market in the next year, down from 19 percent in May. In contrast, 25 percent said it will be one of the two worst and 35 percent picked India. In May, it was just 12 percent.

The MSCI Emerging Markets Index of stocks has slid about 6 percent this year. Developing countries’ dollar-denominated bonds lost 6.1 percent in the second quarter, the biggest decline since Russia’s debt default in 1998, according to JPMorgan Chase & Co.’s EMBI Global Index. The relative yields have widened to 356.9 basis points from this year’s low of 245.4 on Jan. 3.

The poll results weren’t entirely pessimistic. Asked more generally about their perception of investments in the BRIC markets, 54 percent said the nations continue to be worthy countries for investors, while 36 percent said their era is over.

Asia Bears

Respondents in Asia were more bearish on BRIC markets than those outside the continent. Forty-four percent of customers in Asia said India is among the worst markets for investors in the next year, compared with 30 percent in the U.S. and 35 percent in Europe. Almost a third picked China as the poorest choice for investors, compared with 22 percent in the U.S. and 23 percent in Europe.

Investors in the U.S. were most optimistic about their own markets, with 57 percent picking it as offering the best opportunities, while 47 percent of European respondents chose the EU. Asian respondents were more bullish on Japan than those outside the region by a two-to-one margin.

Respondents see China’s growth as more likely to slow than speed up next year. Forty-two percent predict the economy will expand at about the same pace as in 2013, 43 percent say it will be slower and 11 percent see a pickup. Only 14 percent said China will be one of the two best places to invest in the next year, half the amount at the start of the year, and 23 percent call it one or two of the worst.

Changing Model

“China’s overreliance on the investment-led growth model has resulted in rapid debt expansion, overcapacity in capital-intensive industries and excess infrastructure investment,” said respondent Gregory Doger de Speville, an analyst at Fleming SG Capital Pty in Perth, Australia. “The market will remain volatile as investors get accustomed to slower growth and a changing economic structure.”

Japan is seeing its economy benefit from a recovery in demand in Europe and the U.S., and the yen’s decline of about 13 percent against the dollar this year. That has aided Prime Minister Shinzo Abe’s reflation campaign as he considers whether the nation can withstand a sales-tax increase.

The optimism rating for Abe’s policies at 70 percent is higher than any leader ever tested, beating Germany’s Angela Merkel at 65 percent.

“Abe’s popularity has risen further as the Japanese economy is clearly continuing to fare well -- business sentiment, production as well as employment,” said respondent Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo.

While its economy is improving, the Bank of Japan is most likely among major central banks to forgo increasing interest rates, the survey showed. About 56 percent of respondents say Governor Haruhiko Kuroda will hold off from raising borrowing costs until at least the second half of 2015, compared with about 28 percent for the Fed and 50 percent for the European Central Bank.

The poll of Bloomberg customers was conducted by Selzer & Co., a Des Moines, Iowa-based company. The survey has a margin of error of plus or minus 3.3 percentage points.

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