BRIC Update: Is China a Leader or an Outlier?

I have commented on resurgent Chinese stocks several times in the past few weeks, most recently in China About to Break Out? Now that Chinese stocks (iShares FTSE/Xinhua China 25 Index (FXI), black line) appear to be on the rebound, an important question is whether this is an isolated phenomenon or one that will also affect other emerging markets economies.

As the chart below shows (click to enlarge), the rally in Chinese stocks has significantly outdistanced the recent bounce in emerging market stocks (iShares MSCI Emerging Markets Index (EEM), orange line). It is the other three members of the BRIC group, however, that are lagging China and the broad emerging markets group the most. Not surprisingly, commodity-rich Russia (Market Vectors Russia ETF (RSX), blue line) is the biggest laggard among the BRIC countries, while India (WisdomTree India Earnings Index (EPI) and Brazil ( iShares MSCI Brazil Index (EWZ) are trailing the broader emerging markets index, but performing better than Russia.

The question of whether growing domestic demand and a massive government stimulus package will result in a China-specific rebound or help pull other global economies along for the ride is not likely to be answered soon. In the meantime, China looks strong on a relative basis and other emerging economies should be watched closely for clues about the geographical breadth of the rally.

Comments

[Panda:]

BRIC is 4 different markets. It's like playing tug of war, everyone's pulling in a different direction. So they are emerging markets, so what? They all have different govts doing way different things. China and India smart. Russia and Brazil, confused, under the gun, who knows?

2008 Dec 12 03:21 AM