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BRIC economies are still be on pace to outperform their developed-world counterparts over the next two years, but don't count on their stock markets matching that feat.

That's the case made by London-based Capital Economics in a report Tuesday. The respected although routinely skeptical research firm argued that slowing growth in the BRIC nations (Brazil, Russia, India and China) is a bad omen for corporate earnings growth in their respective stock markets. Since earnings are a critical element in stock-market valuations, that doesn't bode well for market growth.

Senior markets economist John Higgins readily acknowledged that stock markets, especially in developing countries like the BRICs, often have a composition that doesn't closely parallel their national economies. As a result, a slowdown in overall GDP doesn't necessarily imply that the equity market will be hit in kind. But he noted that in three of the four BRICs – China, Brazil and India – stock-market earnings have closely tracked gross domestic product (GDP) growth over the past decade.

The one BRIC that doesn't fit that mold is Russia, where the stock market is skewed drastically toward the energy sector. (Oil and gas stocks account for 53 per cent of Russia's benchmark stock index.) However, Mr. Higgins found that Russian stock-market earnings have routinely underperformed the country's broader economic growth over the past 10 years. Should oil prices fall significantly over the next two years (which is Capital Economics' base-case forecast), "the rate of growth of corporate earnings in Russia might slow more rapidly than the rate of growth in the economy," he said.

And while the BRICs are still poised to grow faster than the developed economies over the next two years, the gap between BRIC growth and that of the developed world looks likely to narrow. Mr. Higgins noted that while the GDP growth rate for the G7 for 21012-2014 will be only slightly below the average pace for the past 10 years, the BRICs are all poised to generate growth far below their 10-year average.

What does this mean for stocks? Most likely, a downward revision to the valuations that have been afforded BRIC equities in recent years. Mr. Higgins suggested this won't be merely a temporary adjustment. "The slowdown in the BRICs is likely to be permanent," he argued.

Capital Economics argues that this implies a coming era of underperformance for BRIC stock markets – one that appears to have already arrived. With the exception of India's equity index, the BRICs have substantially underperformed global benchmarks this year, especially on a currency-adjusted basis. On average, the BRIC markets' price-to-earnings valuations are now about 13, which is below the MSCI World index's P/E of 15.

Those below-average valuations could be in place for as long as the growth prospects for the BRICs are in doubt. While a further drop in valuations would be hard to justify, it seems equally unlikely that BRIC markets will be the big outperformers that they were last decade. Their edge in growth just isn't what it used to be.