Bric decade ends as growth peaked: Goldman

New York | Updated: Dec 29 2011, 08:15am hrs
In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poors 500 Index and the economies grew four times faster than Americas.

Now, Goldman Sachs Group, which coined the term Bric, says the best is over for the largest emerging markets.

Bric funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24%, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the US and Japan as the top economies by 2050.

In emerging markets, were waiting for things to get worse before they get better, said Michael Shaoul, the chairman of Marketfield Asset Management in New York who predicted in February that developing-nation stocks would fall this year. The $845 million Marketfield Fund has topped 97% of peers in 2011, data compiled by Bloomberg show.

Gross domestic product in the four countries rose at the slowest pace in almost two years last quarter and Goldman Sachs said this month that their potential economic growth rates have probably peaked because of a smaller supply of new workers. Even as Brazilian and Russian policymakers start to lower borrowing costs, profit growth in the MSCI index will slow to 5% next year from 19% in 2011, trailing the S&P 500 by five percentage points, according to more than 12,000 analyst estimates compiled by Bloomberg.

Average economic growth in the Bric countries will decelerate to 6.1% next year from a high of 9.7% in 2007, according to September estimates by the International Monetary Fund. That would narrow the gap over Americas expansion to 4.3 percentage points, smallest since 2004, the IMF data show. Global GDP may increase 4% next year, restrained by 1.1% growth in the euro area, the Washington-based fund said.

Slowing exports to Europe and government restrictions on real-estate investment are curbing the expansion in China, the biggest emerging economy. Indias growth has been hampered by the fastest interest-rate increases since 1935 and the rupees decline to a record low, which fuelled inflation and deterred foreign investment. Brazil and Russia, whose growth during the past decade was spurred by surging commodity demand, have been hurt by falling metals prices and the slowdown in China.

In emerging markets across the board, all the numbers are pointing toward meaningfully slower growth next year, Rajiv Jain, who oversees about $15 billion as a money manager at Vontobel Asset Management in New York, said in a December 5 phone interview.

Jains emerging-market equity fund beat 98% of peers this year, buoyed by holdings of beverage and tobacco companies whose profits are resilient to economic slowdowns.

The BSE India Sensitive Index led declines among Bric equity gauges this year, falling 23%. Chinas Shanghai Composite Index also dropped 23%, while Russias Micex retreated 18% and Brazils Bovespa sank 16%. The 21-country MSCI Emerging Markets Index lost 20%, while the S&Ps 500 gained 0.6%.

Longer-term economic growth rates in the bric nations are poised to drop as their working-age populations increase more slowly and then eventually shrink, according to a Goldman Sachs report on December 7 titled The BRICs 10 Years On: Halfway Through The Great Transformation.