BRIC’s Rubble Rotation Rumblings

In the first two months the BRIC MSCI component up 5 percent was 1.5 percent above the core index result as Russia’s 15 percent bottom bounce at 5 and below P/E ratios topped both categories. Brazil was the only loser at -5 percent while China and India were ahead 5 percent and 10 percent respectively. In the broader rendering South Africa also advanced 5 percent and Indonesia was flat. Other big markets Mexico, Korea and Taiwan had slight gains, while the consolidated Andean index was down 3 percent. Last year’s champion Egypt was barely positive before the March investor conference seeking new FDI and IMF support and parliamentary elections again encountering delays, as security clashes intensified in the Sinai with Israel also going to the polls. New entrants Qatar and the UAE barely budged after 2014 surges, while previous addition Greece (-15 percent) was the worst performer with former favorite Turkey (-10 percent) and commodity and guerilla-battered Colombia (-12 percent) just behind. In ASEAN the Philippines and Thailand continued to benefit from oil import belief, while Malaysia was stuck with the reverse scenario. Chile’s 2 percent increase was the region’s best, while Hungary was in second in Europe (+ 6 percent) despite Prime Minister Orban’s loss of a two-thirds parliamentary majority as record-low interest rates were further bumped. The Frontier benchmark in contrast fell 1.5 percent on double-digit setbacks especially in Eastern Europe and Sub-Sahara Africa with Argentina(+15 percent) leading the pack despite an indefinite break in holdout creditor negotiations and a central bank crackdown on informal currency market equity plays. Saudi Arabia was next (+12 percent) on likely second half foreign investor opening which may propel the biggest Arab exchange to the main MSCI tier after several reviews. Bulgaria, Kazakhstan, Serbia and Ukraine were off 15-25 percent in the Russia crisis tide. Kazakhstan’s currency was set for devaluation on the anniversary of 2014’s altered corridor, and Serbia’s listings were upset by immediate privatization demands under the resumed IMF program. Ghana and Nigeria were down 10 percent and 20 percent respectively with Kenya (+5 percent) staying the lone upswing course. Nigeria’s local bonds suffered equally on potential removal from the JP Morgan GBI-EM index with central back FX dealing controls to bolster the naira, which passed the 200/dollar threshold on postponed presidential elections. In Asia Bangladesh and Sri Lanka faltered as Pakistan and Vietnam were slightly positive. Vietnamese officials are expected to lift international ownership limits should the TPP free-trade pact with the US be concluded by mid-year as Congress prepares for a treaty vote.

The external bond EMBI rose almost 1.5 percent for the period with Brazil (-3.75 percent) again a loser with the quasi-sovereign Petrobras junk relegation. Argentina (+11 percent) was the outperformer here too on lawsuit settlement noises and speculation that resolution will come in any case with a new president after October. Russia rallied a bit (+3.5 percent) as Venezuela (-10 percent) joined Ukraine in the cellar as another bolivar trading platform was introduced without revolutionary construct.