Slowdown, Debt Fears May Weigh on BRIC ETFs in 2012

December 28th at 3:21pm by Tom Lydon

Mutual funds and exchange traded funds tracking the so-called BRIC countries of Brazil, Russia, India and China have been a popular investment fad over the past several years. However, BRIC funds have badly lagged U.S. stocks this year and Goldman Sachs (NYSE: GS), which coined the acronym, thinks 2012 could be another tough year for emerging markets as the Europe debt crisis rages, according to a report Wednesday.

Unleveraged BRIC ETFs are down as much as 24% year-to-date, whereas the S&P 500 has gained 2.7% year-to-date.

Over the year, BRIC funds have bled $15 billion in assets, the largest on an annual basis since 1996, while the MSCI BRIC Index dropped 24%, report Michael Patterson and Shiyin Chen for Bloomberg. The index has outperformed the S&P 500 by 390% between Nov. 2001 and Sept. 2010, but it has fallen behind over five consecutive quarters.

In China, a drop in exports to Europe and greater regulatory scrutiny over real-estate investments are dragging on the economy. Inflation and a drop in foreign investment have hampered India’s growth as the country hiked interest rates at the highest pace since 1935. Brazil and Russia are also seeing a lower demand for raw materials and commodities, especially from China.

According to a recent Goldman Sachs report, long-term growth in BRIC countries will begin to drop as the population of average working-age citizens begins to decline.

“We have likely seen the peak in potential growth for the BRICs as a group,” Dominic Wilson, an economist at Goldman Sachs, said in the report.

Arjuna Mahendran, head of Asia investment strategy at HSBC Private Bank, believes BRIC Indices may continue to drop another 20% in 2012 due to the liquidity squeeze coming out of the Eurozone.

“In emerging markets across the board, all the numbers are pointing toward meaningfully slower growth” next year, Rajiv Jain, money manager at Vontobel Asset Management Inc., said in the WSJ story.

“In emerging markets, we’re waiting for things to get worse before they get better,” Michael Shaoul, the chairman of Marketfield Asset Management, said in the article.

  • iShares MSCI BRIC Index Fund ETF (NYSEArca: BKF): down 24.4% year-to-date
  • Guggenheim BRIC ETF (NYSEArca: EEB): down 23.8% year-to-date
  • SPDR S&P BRIC 40 ETF (NYSEArca: BIK): down 18.1% year-to-date
  • Direxion Daily BRIC Bull 2x Shares ETF (NYSEArca: BRIL): down 45.6% year-to-date
  • Direxion Daily BRIC Bear 2x Shares ETF (NYSEArca: BRIS): up 8.8% year-to-date

iShares MSCI BRIC Index Fund ETF

For more information on the BRICs bloc, visit our BRICs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.