Tuesday, December 9, 2008

BRIC Update: China a Leader or 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 (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, the rally in Chinese stocks has significantly outdistanced the recent bounce in emerging market stocks (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 (RSX, blue line) is the biggest laggard among the BRIC countries, while India (EPI) and Brazil (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.

[source: BigCharts]


Anonymous said...

Good call for the FXI index as it increased 56.6% from its November 21st low to yesterdays close as compared to the 18.2% increase in the SPX 500 index over this time. The December eighth close in the FXI index is 58% lower than its October 2007 peak and the SPX 500 closed 44% lower than its October
2007 closing high of 1565.

Anonymous said...

I'm also wondering about whether China is an outlier, and in what respects.

I plan to visit the BRIC countries in a few months and look forward to learning more about their similarities and differences.

Check out my blog on the BRIC countries.

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