The BRIC markets (Brazil, Russia, India, and China) haven't received much headline attention during the global financial crisis, but they should hardly be dismissed. The nations have served as an invaluable pillar to the global economy, and their economic issues are nearly as deserving of attention as the issues facing Europe or the United States.
Simply, BRIC economies are crucial because they are acting as a stabilizing force for the global market. If they should fall, we would lose that stabilizing element. Nations would find themselves in more economic trouble than they dreamed.
According to Thomas H. Kee Jr. of MarketWatch, "without much debate at all, the only solid promoting market based stability has been the demand from BRIC countries, mostly China, and if that pares back the result will devastate the global economy as we know it today ... Eventually there will be a material hit to these BRIC economies, and the fragile nature of mature economies will not be able to offset that weakness."
If BRIC nations fall, he says it could lead the global economy toward another Great Depression. Clearly, a lot rides on their success. That's why it's a good idea to have an understanding of the goings-on in BRIC nations.
Unfortunately, the details are largely discomforting. Here's the scoop:
Brazil: The economy is set for a slowdown. Industrial production has slowed, and GDP is forecasted to grow 3.5% this year compared to 2010's 7.5%. The country has an annual inflation rate of 7.33% and an unemployment rate of 6.33%. Furthermore, Brazil's strong currency makes it difficult to compete with cheap imports, particularly from Asia. (via Financial Times)
Russia: Business Insider reports: "Russia's GDP [currently 6.1% YoY] is expected to ease to 4.1% next year, and analysts continue to argue that Russia should be ousted from the BRICs and replaced by Indonesia. Social discontent has been on the rise, its economy is vulnerable to shocks in oil prices, and oil money is reportedly running out."
India: India's unemployment rate of 9.4% can be matched by its annual inflation rate of 9.41%. The Bombay Stock Exchange has fallen 23.19% YTD. GDP growth is expected to drop from 7.7% to 7.5%. High inflation and wage inflation rates make it difficult to adjust the fiscal and monetary policies necessary to accommodate the emerging market and booming population. As a result, investors are largely pulling out of the economy and corporations are discouraged from expanding into India. (via Business Insider)
China: China is no small thing for investors. Changes in the country's economic policies can send shockwaves throughout the globe, so it should come as no surprise that analysts are nervous when they say the country is set for a hard landing. China has said goodbye to its years of double-digit GDP growth, which has dropped down to 9%-9.5% and is expected to drop to less than 5% by 2016. The country also has a large underground banking sector and faces outside pressure to increase the value of its currency to the detriment of its export industry.
South Africa: There is some debate about the country's status as a BRIC member. Some argue that South Africa's economic magnitude is fundamentally different than other BRICs. Still, it is worth a look: The country has an astonishing 25.7% unemployment rate but is the only "BRIC" country expected to see a rise in GDP (3%-although some agree that number is overly ambitious). The country struggles with a "rising structural deficit," crime and an HIV/AIDS epidemic.
Indonesia: This contender for Russia's spot in the BRIC community has a 7.14% unemployment rate, however the country has a lot of things going for it that other BRICs do not: Business Insider reports that their GDP is expected to drop a mere 0.1% to 6.3%. Prices have remained stable and the country expects an increase in consumer spending. In addition, "the country cut its corporate income tax rate as an incentive to foreign investors and has implemented reforms to make its economy more competitive." Perhaps most importantly, trade accounts for 58.4% of its GDP, limiting its dependence on U.S. and European demand (majority trade partners are in Asia).
Given the above information on these countries, do you agree with Kee's predictions of worldwide financial collapse?
We figured, with all the doom and gloom surrounding the BRIC economies, short sellers must be paying close attention. Below we've listed 10 BRIC stocks that have seen a sharp increase in shares shorted over the last month (i.e., increased bets that these investments will fall in value).
Short-sellers seem to think these stocks are in deep trouble -- do you? How long before the BRIC economies stabilize, and ultimately rebound?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these companies.)
1. Companhia Brasileira de Distribuicao
2. Changyou.com Limited
3. New Oriental Education & Technology Group
4. MakeMyTrip Limited
5. Giant Interactive Group
6. Harbin Electric
7. 21Vianet Group
8. Yingli Green Energy Holding
9. E-Commerce China Dangdang
10. Trina Solar
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
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