Brazil and India perform badly during November

The major ‘Bric’ markets of Brazil, Russia, India and China fell by 3.6% in US dollar terms, pulled lower by India and Brazil.

After generating relatively strong returns during October, share prices in emerging markets fell back during November. The MSCI Emerging Markets index declined by 2.7% in US dollar terms during the month, and underlying markets showed a mixed performance.

The Organisation for Economic Cooperation & Development (OECD) reduced its forecast for global growth during 2011 from 4.5% to 4.2%, but believes growth in many emerging economies will remain relatively strong.
The OECD expects China’s economy to expand by 10.5% during 2010 and by 9.7% in 2011, while India is forecast to grow by 9.1% this year and 8.2% next year. Russia is expected to generate economic growth of 3.7% in 2010, accelerating to 4.2% in 2011. Meanwhile, Brazil’s economy is tipped to expand by 7.5% in 2010, and then to slow to 4.3% in 2011. The latter’s Bovespa index fell during November, dropping more than 4%.

News the US Federal Reserve had decided to expand its asset purchasing programme by $600bn (£380bn) was not universally well received by leaders and policymakers in developing countries, who fear the measures are likely to fuel ongoing inflationary pressures.

Meanwhile, friction over exchange rates continued between the US and China. During the month, the OECD urged China to allow its currency to appreciate, commenting: “The stability of the domestic economy would be enhanced if the exchange-rate policy were more oriented to allowing appreciation.”

In China, the rate of inflation surged during October to 4.4%, compared with a rise of 3.6% during September. In order to combat inflation, China twice increased the amount of funds that lenders must hold in reserve during the month. The Shanghai Composite Index fell by 5.3% during November.

India’s economy expanded by an annualised 8.9% between July and September and policymakers increased the country’s interest rates by 25 basis points to 6.25% in an attempt to cool inflation. Nevertheless, the central bank did its best to reassure investors by advising that the likelihood of further rate increases in the “immediate future is relatively low”. Reassuringly, later in the month, the Central Statistical Office reported the rate of inflation had slowed during October.

According to recent data released by the Investment Management Association, the Global Emerging Markets sector was the best-selling fund sector during October, experiencing its highest-ever monthly sales.

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