Capital flight from the BRICs, Brazil, Russia, India and China, is sending their stocks, bonds and currencies down in tandem for the first time since 2006 as the 10-year love affair with the largest emerging markets ends.
“Every decade, there’s a theme that captures investors’ imagination — the 1970s was about gold, 1980s was all about Japan and 1990s was about technology companies,” Ruchir Sharma, the New York-based head of emerging markets at Morgan Stanley Investment Management, which oversees $341 billion, said in a phone interview on July 8. “Last decade it was about the BRICs. That theme has basically run its course.”
Investors withdrew $13.9 billion from equity mutual funds invested in the four countries this year, or 27 percent of the inflows since 2005, according to EPFR Global. The MSCI BRIC Index fell 12 percent last quarter while the nations’ currencies sank 4.1 percent against the dollar and government bonds lost an average 0.6 percent, the only such correlation in data compiled by Bloomberg going back seven years.
Brazil’s combination of rising inflation, weak economic growth and violent protests is driving away investors just as speculation of reduced Federal Reserve stimulus spurs capital outflows from emerging markets worldwide. Russia’s economy has slowed for five straight quarters as oil dropped, while India’s current-account deficit fueled the rupee’s decline to an all-time low. China is headed for the weakest annual expansion since 1990, according to Barclays Plc and HSBC Holdings Plc.
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