Throwing Up BRICsOctober 28, 2014
In my favorite scene of White Men Can’t Jump, Woody Harrlson’s character stops the basketball game and confronts his teammate (played by Wesley Snipes) about his poor play, saying, “What, you still throwing up bricks? What is this, a Masons convention? Wha…clank, clank! I need, like a welding torch to play in this league! I got an idea…let’s just stop right now and gather up all these bricks and let’s build a shelter for the homeless so maybe your mother will have a place to live!”
Investing in the BRICs (Brazil, Russia, India and China) really has been like watching a bunch of poor shot attempts bounce off the rim. Where to begin?
The Emerging Markets in general have hugely underperformed the MSCI All Country World (ACWI) index over the last few years.
Yesterday, Brazil’s plunge was the latest BRIC to clank off the rim. Brazil is now at 5 year lows relative to the MSCI ACWI, having underperformed by 60%.
This, in turn, has taken MSCI Latin America to within 1% of a new low relative to the MSCI ACWI Index.
Over the last month Brazil is the worst performing country in the MSCI EM index, with the average stock down over 13%.
MSCI EM Country Performance
Within Brazil, the worst performing group is the energy sector and the best performing sector is the health care sector.
MSCI Brazil Sector Performance
This is perfectly consistent with broader performance trends withing the emerging markets.
MSCI EM Sector Performance
The MSCI EM healthcare sector is the best performing sector over the last five years, having outperformed the MSCI ACWI by 29% over the last five years.
At the same time, the MSCI EM energy sector has been the worst performer, having underperformed by 55% over the last five years.
The term BRIC was created as a way to segregate certain regions within the emerging markets in an effort to isolate on the most attractive investment themes. Followers of this strategy have been throwing up a lot bricks lately. Perhaps a more intelligent way to approach the emerging markets is via a different approach. In our Gavekal Knowledge Leaders Emerging Market Index (KNLGE) (http://www.gavekalcapital.com/indexes.php) we follow a different approach, focusing on the EM companies with the highest knowledge intensity. Performance of our KNLGE index has trounced the performance of the MSCI EM index, as I explain in our latest video update (http://blog.gavekalcapital.com/performance-snapshot-gavekal-knowledge-leaders-emerging-markets-index/)