Oil Below $120 Will Reverse `BR-IC’ Fortunes:

by Dave

Bloomberg.com: Opinion

If the price of oil goes below $120 a barrel (from about $126 yesterday), if China’s annual inflation rate slows to 5 percent (from 7.1 percent last month), and if the U.S. banking crisis comes to an end, then the sagging fortunes of equity markets in the two Asian countries may reverse in relation to their better-performing “BRIC” cousins: Brazil and Russia.

At the beginning of this year, Indian and Chinese stock markets, taken together, were almost three times as large as the combined value of shares traded in Brazil and Russia.

Since then, the gap has almost halved.

Brazil’s Bovespa Index, the world’s 10th-best-performing, has risen more than 5 percent in U.S. dollar terms this year, while Russia’s Micex Index has declined 11 percent.

By comparison, Indian and Chinese benchmarks have taken a hammering, falling 36 percent and 42 percent, respectively.

BRIC has become “BR-IC”: two disjointed halves.

With runaway commodity prices, such an outcome was only to be expected. After all, Brazil and Russia produce a lot of the stuff that 2.3 billion people in India and China guzzle.

By contrast, Indian and Chinese energy and resource producers have little exportable surplus and are forced to satisfy domestic demand at less-than-remunerative prices.

These companies have, therefore, been nowhere as appealing to investors as their counterparts in Brazil and Russia.

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