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When building a portfolio, are BRICS still a buy?

Declining demand for iron ore and other raw materials has hurt Brazil.

Down, down, down. That’s the direction of stocks in the BRICS economies, which were investment darlings last year but now seem deadweights.

In stock market terms, it’s been a disappointing year for the emerging-market powerhouses that make up the acronym: Brazil, Russia, India, China, and South Africa. Almost all of their major stock indexes are lower. The market in the United States, by contrast, is up 15 percent.

But BRICS, for a lot of reasons, are still a good buy for many investors, who think this year’s declines are just a blip. The economy is growing in every BRICS country. China’s expanded by nearly 8 percent last year, lower than before but enviable to most everyone else, including the United States, with a growth rate just above 2 percent. Growth in the BRICS countries will continue to outstrip that of the developed world, and that of overall emerging markets, for at least the next five years, according to the International Monetary Fund.

What made emerging markets so attractive in the first place — namely, untapped potential — is still in ample supply in the BRICS. For most, their workforces are young and expanding; their poverty rates are falling; their life expectancy is growing. Together, they account for about 42 percent of the world’s population.


As for the troubling declines this year, not to worry, says Derrick Irwin, portfolio manager at Wells Fargo Advantage Funds. The stocks have room to grow.

Irwin says emerging-market countries, including the BRICS, represent about 29 percent of the global economy but just 12 percent of global stock market value. That means the emerging-market stocks are ‘‘punching beneath their weight,’’ he says, and ‘‘still maturing.’’

The United States, on the other hand, is punching above its weight: It has 47 percent of the world’s stock market value, but makes up less than 24 percent of the world economy, according to calculations using the MSCI All Country World Index.


Luiz Carvalho, managing partner at Tree Capital, thinks that concerns about the BRICS stock markets are overblown and are already accounted for in the lower stock prices. He believes they’re set to grow.

From 2001 to 2007, the BRICS clocked better stock gains than the world’s most industrialized countries. But the BRICS beat the developed countries only twice from 2008 through 2012, as measured by the MSCI BRIC index and the MSCI G7 index, which encompasses the seven most industrialized countries.

For investors, it’s important to remember that even if the BRICS are lumped together in hearts, minds and analyst reports, they still should be examined individually.

‘‘Not all BRIC countries are created alike,’’ says Anthony Chan, chief economist for Chase Private Client. For short-term prospects, he likes China best, with Brazil a distant second. Still, he’s optimistic about all the BRICS — if they ‘‘pursue the right policy paths.’’

Here’s a glance at each country:


Declining demand for iron ore and other raw materials has hurt Brazil. The central bank has tried to stimulate the economy, with limited success. Growth was less than 1 percent last year and roughly 3 percent in 2011, a disappointment after growth of nearly 8 percent in 2010.

Some analysts think a turnaround is near. The government has been trying to trim energy costs and strengthen investment in infrastructure. Much depends on China, Brazil’s biggest trading partner.


Growth is expected to rise to 3 percent this year.

Stocks: The Bovespa is down 15 percent this year, after rising 7 percent last year.


It depends heavily on oil and gas production, so it has suffered as prices have flat-lined. Labor strikes and a lack of business investment have derailed productivity. Its population, unlike in other BRICS, is shrinking.

Growth has been around 3 or 4 percent for three years, below where it was before the financial crisis. Growth is expected to be about 3 percent this year, unchanged from 2012. The World Bank says the country needs to shrink the government’s involvement in the economy, clamp down on corruption, and map a plan for its aging population.

Stocks: The MSCI Russia index is down 13 percent this year, after rising 5 percent last year.


Growth declined to 4 percent last year, slow by India’s standards. It’s possible that the economy is just taking a breather; India’s growth eased to 8 percent in 2011 from 11 percent in 2010.

Some investors see deeper problems, though. There are worries the country hasn’t done enough to open up to foreign investors. Others wonder if a new government could stoke stability and tamp down corruption. It’s vital that the country spend more on infrastructure. Its economy is projected to grow 6 percent this year.

Stocks: The India SENSEX is flat this year after rising 26 percent last year.


China has powered forward as it moves toward a more market-based economy. It propped up the world economy in the depths of the financial crisis, growing rapidly even when the economies of most other countries shrank.


In 2012, China’s economy grew about 8 percent, down from the 9 and 10 percent range of the previous four years. That may reflect efforts to shift from an export-based economy to one focused more on consumer spending. Growth is expected to be 8 percent this year.

Stocks: The Shanghai Composite index is down 3 percent this year, after rising 3 percent last year.

South Africa

It has transformed itself from apartheid to a democracy with modern infrastructure. Growth, however, has been just 2 or 3 percent for the past three years. It is expected to pick up slightly this year, to 2.8 percent.

The country is saddled with a devastating unemployment rate of 25 percent, and it’s expected to get worse. The country was hurt by an electricity crisis in 2007, then the global financial crisis reduced demand for South Africa’s raw materials. This year, the mining industry has been plagued by violent strikes. High AIDS rates strain the health care system, and deep inequalities between rich and poor hinder growth, the World Bank says.

Stocks: The MSCI South Africa index is down 5 percent this year, after rising 21 percent last year.