(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Short data sourced from Yahoo! Finance.)
The BRIC markets (Brazil, Russia, India, and China) haven’t received much headline attention during the global financial crisis, but they should hardly be dismissed. The nations have served as an invaluable pillar to the global economy and their economic issues are nearly as deserving of attention as the issues facing Europe or the United States.
Simply, BRIC economies are crucial because they are acting as a stabilizing force for the global market. If they should fall, we would lose that stabilizing element. Nations would find themselves in more economic trouble than they dreamed.
According to Thomas H. Kee Jr. of MarketWatch, “without much debate at all, the only solid promoting market based stability has been the demand from BRIC countries, mostly China, and if that pares back the result will devastate the global economy as we know it today…Eventually there will be a material hit to these BRIC economies, and the fragile nature of mature economies will not be able to offset that weakness.”
If BRIC nations fall he says it could lead the global economy towards another Great Depression. Clearly, a lot rides on their success. That’s why it’s a good idea to have an understanding of the goings-on in BRIC nations.
Unfortunately, the details are largely discomforting. Here’s the scoop:
Brazil: The economy is set for a slowdown. Industrial production has slowed, and GDP is forecasted to grow 3.5% this year compared to 2010′s 7.5%. The country has an annual inflation rate of 7.33% and an unemployment rate of 6.33%. Furthermore, Brazil’s strong currency makes it difficult to compete with cheap imports, particularly from Asia. (Via Financial Times)
Russia: Business Insider reports: “Russia’s GDP [currently 6.1% YoY] is expected to ease to 4.1% next year, and analysts continue to argue that Russia should be ousted from the BRICs and replaced by Indonesia. Social discontent has been on the rise, its economy is vulnerable to shocks in oil prices, and oil money is reportedly running out.”
India: India’s unemployment rate of 9.4% can be matched by its annual inflation rate of 9.41%. The Bombay Stock Exchange has fallen 23.19% YTD. GDP growth is expected to drop from 7.7% to 7.5%. High inflation and wage inflation rates make it difficult to adjust the fiscal and monetary policies necessary to accommodate the emerging market and booming population. As a result, investors are largely pulling out of the economy and corporations are discouraged from expanding into India. (Via Business Insider)
China: China is no small thing for investors. Changes in the country’s economic policies can send shockwaves throughout the globe, so it should come as no surprise that analysts are nervous when they say the country is set for a hard landing. China has said goodbye to its years of double-digit GDP growth, which has dropped down to 9% – 9.5% and is expected to drop to less than 5% by 2016. The country also has a large underground banking sector and faces outside pressure to increase the value of its currency to the detriment of its export industry.
South Africa: There is some debate about the country’s status as a BRIC member. Some argue that South Africa’s economic magnitude is fundamentally different than other BRICs. Still, it is worth a look: The country has an astonishing 25.7% unemployment rate but is the only “BRIC” country expected to see a rise in GDP (3% – although some agree that number is overly ambitious). The country struggles with a “rising structural deficit,” crime and an HIV/AIDS epidemic.
Indonesia: This contender for Russia’s spot in the BRIC community has a 7.14% unemployment rate, however the country has a lot of things going for it that other BRICs do not: Business Insider reports that their GDP is expected to drop a mere 0.1% to 6.3%. Prices have remained stable and the country expects an increase in consumer spending. In addition, “the country cut its corporate income tax rate as an incentive to foreign investors and has implemented reforms to make its economy more competitive.” Perhaps most importantly, trade accounts for 58.4% of its GDP, limiting its dependence on US and European demand (majority trade partners are in Asia).
Given the above information on these countries, do you agree with Kee’s predictions of worldwide financial collapse?
We figured, with all the doom and gloom surrounding the BRIC economies, short sellers must be paying close attention. Below we’ve listed ten BRIC stocks that have seen a sharp increase in shares shorted over the last month (i.e. increased bets that these investments will fall in value).
Short sellers seem to think these stocks are in deep trouble–do you? How long before the BRIC economies stabilize, and ultimately rebound?
Use this list as a starting point for your own analysis.
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1. Companhia Brasileira de Distribuicao (CBD): Operates as a retailer of food products, clothing, home appliances, and other products through its chain of hypermarkets, supermarkets, specialized and department stores, convenience stores, and the Internet in Brazil. Shares shorted have increased from 3.69M to 4.74M over the last month, an increase which represents about 1.25% of the company's float of 84.31M shares.
2. Changyou.com Limited (CYOU): Develops and operates online games in the People's Republic of China. Shares shorted have increased from 1.86M to 2.14M over the last month, an increase which represents about 2.79% of the company's float of 10.03M shares.
3. New Oriental Education & Technology Group (EDU): Provides private educational services primarily in the People's Republic of China. Shares shorted have increased from 1.94M to 2.56M over the last month, an increase which represents about 1.96% of the company's float of 31.65M shares.
4. MakeMyTrip Limited (MMYT): Provides travel products and solutions in India and the United States. Shares shorted have increased from 2.20M to 2.29M over the last month, an increase which represents about 1.11% of the company's float of 8.14M shares.
5. Giant Interactive Group, Inc. (GA): Develops and operates online games in the People's Republic of China. Shares shorted have increased from 3.44M to 6.29M over the last month, an increase which represents about 3.16% of the company's float of 90.17M shares.
6. Harbin Electric, Inc. (HRBN): Engages in the design, development, manufacture, supply, and service of electric motors in the People's Republic of China and internationally. Shares shorted have increased from 8.14M to 9.43M over the last month, an increase which represents about 7.98% of the company's float of 16.17M shares.
7. 21Vianet Group Inc. (VNET): Provides carrier-neutral Internet data center services in China. Shares shorted have increased from 1.14M to 1.86M over the last month, an increase which represents about 7.68% of the company's float of 9.38M shares.
8. Yingli Green Energy Holding Co. Ltd. (YGE): Engages in the design, development, manufacture, marketing, sale, and installation of photovoltaic (PV) products in the People's Republic of China and internationally. Shares shorted have increased from 16.34M to 18.36M over the last month, an increase which represents about 2.25% of the company's float of 89.94M shares.
9. E-Commerce China Dangdang Inc. (DANG): Operates as a business-to-consumer e-commerce company in the People's Republic of China. Shares shorted have increased from 8.66M to 9.34M over the last month, an increase which represents about 2.12% of the company's float of 32.13M shares.
10. Trina Solar Ltd. (TSL): Designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. Based in China. Shares shorted have increased from 16.59M to 20.54M over the last month, an increase which represents about 6.77% of the company's float of 58.36M shares.