The End of the BRIC Trade

In a crisis, as we all know by now, all correlations go to 1. But it's still interesting to see how similarly the BRICs have behaved. Floyd Norris has their respective declines:

Brazil, down 55%
Russia, down 65%
China, down 57%
India, down 58%

All of them have underperformed the US; none of them was remotely a safe haven. But I have a feeling that when this crisis has passed, we'll see a redifferentiation of the BRICs. They might have risen and fallen together, but I doubt they'll rise together the second time around.

Think of the BRICs on three main axes: politics, demographics, and commodities. Russia and Brazil are both big commodity plays, for instance, but they're worlds apart on the political and demographic axes, where Brazil looks much more like India. The political risk that has decimated Russian stocks still hasn't been priced in to Chinese stocks, and barely exists in India. China's population is large, but it's getting older, and it's not growing very fast, thanks to the one child policy; Russia's population is actually shrinking.

During the irrational exuberance of the BRIC boom, investors seemingly paid little attention to these differences. But looking forwards, I simply can't imagine that the four countries are going to continue to move in lockstep any more. My gut feeling is that Brazil remains a great long-term investment, while Russia, over the long term, is going to continue to be an unpleasant place for foreign investors. But I might well be wrong about that. What I'm much more sure about is that the correlation between the two is going to come down. After all, it can hardly rise much further.

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