BRIC ETFs Get Hit with Outflows

March 18th at 11:50am by Tom Lydon

Local investors have been heading for the exits in BRIC (Brazil, Russia, India, China) economies. Outflows in such exchange traded funds and equity markets are touching upon highs not seen since 1996.

“People domestically can see that the fundamentals of a large part of their investable universe is not very good,” John-Paul Smith, Deutsche Bank strategist said. “It’s difficult to find stocks you want to own that combine improving fundamentals with attractive valuations.” [BRIC ETFs Vs. Emerging Markets]

BRIC shares are trading at the cheapest levels versus global equities since July 2009, according to Bloomberg data. More than 59 companies in the MSCI BRIC Index reported quarterly earnings that fell below analyst estimates. This is the fourth quarter in row that had led to disappointing earnings reports.

Locals trading in Indian stock markets have pulled back and are putting their capital into government bonds. Trading by investors in Brazil has dropped to the lowest level since 1999, while Russian mutual funds have posted 16 consecutive months of outflows, reports Michael Patterson, Julia Leite, and Rajhkumar k Shaaw for Bloomberg. In China, more than 60% of companies in the Shanghai index that reported annual profits so far this year have trailed analysts’ estimates, compared with 42% in the MSCI All-Country gauge, reported by Bloomberg data.

“The confidence of small investors is rock bottom,” Nirav Vora said in a phone interview. “They have no faith in the markets.” His investment of 2.5 million rupees ($45,984) has lost 72% in the Indian stock market. [Will 2013 be the Year of the BRIC ETF?]

According to Bloomberg data, the last round of pessimism in Brazil and India caused the corresponding nations benchmark equity indices to fall more than 10% in 12 months.

On the flip side, U.S. equity markets have turned around with a four-year climb in domestic stocks. Even as investors are pulling out, U.S. stock mutual funds have gained $20 billion in new inflows to mutual funds, according to the Investment Company Institute.[BRIC ETFs: Investors Jump into China and Brazil]

BRIC ETFs:

  • iShares MSCI BRIC Index Fund (NYSEArca: BKF)
  • Guggenheim BRIC ETF (NYSEArca: EEB)
  • SPDR S&P BRIC 40 ETF (NYSEArca: BIK)

Single-Country BRIC ETFs:

  • Market Vectors India Small-Cap ETF (NYSEArca: SCIF) 
  • iShares MSCI Russia (NYSEArca: ERUS)
  • iShares MSCI Brazil (NYSEArca: EWZ
  • iShares FTSE China 25 (NYSEArca: FXI)

iShares MSCI BRIC Index Fund

BRICs, BKF, EEB, BIK, SCIF, EWZ, FXI, ERUS, FXI,

Tisha Guerrero 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.