Brazil and Russia were investor favorites ten years ago. But a nasty recession in Brazil and Russia, plus the sanctions placed on Russia, have those emerging markets in a financial hammerlock. BRIC equity funds were off-limits to investors, but over the last couple of weeks, those funds have come alive. According to a Boston-based fund tracker, Brazil, Russia, India, and China received $45 million from investors in first two months of 2017. BRIC equity funds are enjoying the longest inflow of cash since June 2016. Commodity prices, corporate earnings and the fact that the Federal Reserve may not raise interest rates are the catalysts for the increase in investor interest. But even with this surge in investor interest, the four emerging markets are still a long way off from the 2007 boom days.
Lackluster commodity prices threw Brazil and Russia into a recession in 2014, and China didn’t help the situation. China was Brazil’s largest trading partner five years ago, but the Chinese manufacturing-based economy started to fall apart in 2012. Productivity and new orders continue to slow down GDP output in China, and that slowdown impacts the BRICS alliance. Chinese banks have too much bad debts on the books. The government is trying to hide the drain on capital reserves, but investors like Jim Dondero, the president of Highland Capital Management think, China’s debt could be the straw that breaks the global economies back over the next 18 months. India is the only country in the BRICS alliance that is posting positive GDP percentages. China GDP output is still better than most, but it is not as good as it was in 2012.
Even though there is renewed interest in BRIC equity funds, Dondero believes investors will support individual funds rather than the BRIC fund going forward. So far in 2017, Russia and Brazil funds received $1 billion each. That is the biggest inflow since the end of 2014. India funds received $380 million so far in 2017 because there is talk that India’s economy may be slowing down. India funds enjoyed cash flow of more than $2.3 billion in 2016.
The number of active BRIC funds continues to drop from the high of 106 funds in 2014. In 2016 there were 79 active BRIC funds. Net assets in those funds shrank to $4.87 billion from $7.6 billion in 2015, according to Jim Dondero.
The BRIC alliance is considered strange by many investors. Dondero and other investors say there are few similarities in those countries in terms of commodity use and commodity production. Many investors are concerned about the political systems in BRIC countries and that keeps many investors away.
James Dondero is a University of Virginia graduate with degrees in finance and accounting. James has more than 30 years of experience in the investment and finance industry. In 1984, he started his career at Morgan Guaranty. He was hired by American Express that same year. Jim spent four years at American Express before he took the job at a subsidiary of Progressive Life. In 1993, he founded Dallas-based Highland Capital Management with his partner Mark Okada. Dondero is responsible for the incredible growth of the company. Highland Capital has more than $16 billion in assets under management. Dondero is also known for his work with nonprofits in the Dallas area. The Highland Dallas Foundation supports several organizations in the Dallas area.