BRIC stocks lag global equities for a 3d year

HONG KONG — Stocks in the biggest developing markets are lagging global equities for a record third year as faster economic growth proves no lure for investors amid concerns over government interference in markets.

The MSCI BRIC index of shares in Brazil, Russia, India, and China rose 11 percent last year through Dec. 28, trailing the MSCI All-Country World index by 1.6 percentage points.

The trend will probably persist in 2013, said John-Paul Smith, a Deutsche Bank strategist. Mutual funds that invest in BRIC nations posted $1.65 billion of outflows as Brazilian politicians intervened to cut utility rates, China kept control of its biggest companies, and Russian businesses spent shareholder money on projects the government favors.


‘‘This whole revolution of going from a socialistic mentality to a market economy mentality is not complete,’’ said Mark Mobius, executive chairman of Templeton Emerging Markets Group. He has invested in developing countries for more than 25 years. ‘‘We’re still in the middle of that and have a long way to go.’’

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Stocks of BRIC companies beat global equities by 403 percentage points in the eight years after Goldman Sachs coined the term in 2001, as their economies grew more than threefold. But their gross domestic product is now expanding at the slowest rate, compared to the rest of the world, since 1998. The International Monetary Fund sees average growth in the four countries of 4.5 percent this year, down from 8.1 percent in 2010, compared with 3.3 percent for the world economy.

While the BRIC gauge increased this year, the value of shares traded on local bourses fell to a three-year low and the measure is still 36 percent below its October 2007 peak. The outlier is India, where the benchmark BSE India Sensitive Index surged 26 percent as the government responded to the threat of a credit-rating downgrade with its biggest push in a decade to open up the economy to foreign investment.

‘‘Governments typically only carry out reforms when they have their back to the wall,’’ said Ruchir Sharma, at Morgan Stanley Investment Management. ‘‘It’s moving in the right direction in some of these countries, but the task is so enormous that I’m not sure it’s enough.’’

India has taken steps that make it the most promising of the four countries in terms of long-term stock gains, said Jim O’Neill, who created the term BRIC and now oversees $716 billion at Goldman Sachs.


Prime Minister Manmohan Singh’s administration removed barriers this year on foreign investment in the retail and aviation industries, opened the stock market to individual investors abroad, and cut fuel subsidies. India’s finance minister is also seeking to open up the insurance and pension industries to overseas capital.

In China, the Shanghai Composite index climbed about 1.5 percent last year, the worst BRICs performance. But the government cut trading fees and dividend taxes and more than doubled the number of shares overseas money managers can own.