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Emerging markets squeezed by slowdown, prices

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Though emerging markets weathered the economic downturn better than many of their first-world counterparts, some of those benefits have not necessarily been reflected in the performance of BRIC (Brazil, Russia, India, China) assets or those of other global markets.

In fact, the Bovespa index of the Brazilian stock marketperformed worse than the beleguered Greek stock market this year, the Financial Times' beyondbrics blog reported.

The market's headline firm, the partially-privatized state oil firm Petrobras ( PBR ), posted solid results yesterday, as quarterly profit rose by 32 percent on higher oil prices and faster drilling. But concerns about global growth knocked 1.33 percent off the company's NYSE ADRs this morning.

One challenge faced by many of the BRIC nations is inflation - in India, the FT reports , prices have been rising by a little under 10 percent per month. Analysts are predicting that the Reserve Bank of India will raise rates by another 25 basis points in September, trying to prevent the economy from overheating.

Meanwhile, Bloomberg writes that the Brazilian central bank may actually lower rates, risking higher inflation - long a bugbear of the South American economy - to stave off the negative effects of global slowdown. Because Brazil depends so heavily on the expert of raw materials like oil, steel and soybeans, a drop in consumption and demand will reverberate back to major firms like Petrobras and Vale ( VALE ).

With volatility as high as it is and the global economy prone to further shocks, short-term recommendations look risky. However, in the long run, the BRIC nations have more room to grow and expand their middle classes and build a broad base of wealth than the top-heavy and teetering markets of the developed world.

The writer is long Petrobras ( PBR ) and Embraer ( ERJ ).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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