BRICs lose for a second time in decade as America takes over

Stocks in developed countries are rising the most since 1998 while emerging markets slump, a sign the US is returning to its role as the engine of world growth aided by a recovery in Europe.

The MSCI World Index of equities in 24 countries rose 6.1 per cent for 2011 through yesterday, the best annual start in 13 years, and the MSCI Emerging Markets Index of shares in nations such as Brazil, Russia, India and China lost 2.7 per cent. A Morgan Stanley gauge of stocks such as Archer Daniels Midland Co and Deere & Co meant to rally when inflation expectations match Federal Reserve targets added 46 per cent since August, almost double the Standard & Poor’s 500 Index.

While emerging-market equities beat developed countries every year except 2008 in the past decade, they’re falling now as Brazil, Russia, India and China battle inflation. Thornburg Investment Management Inc. and Barclays Plc expect bigger gains from developed-market equities after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to prevent the breakup of the euro and the Fed began buying $600 billion in Treasuries to spur growth.

“You’ve got more willingness to take risk with equities in developed markets,” said Santa Fe, New Mexico-based William Fries, who runs the $26.7 billion Thornburg International Value Fund that beat 92 per cent of peers since 2006. “At the beginning of the year, the world kind of turned upside down. There wasn’t a great deal of money flowing into developed markets over the last couple of years, and that’s starting to change.”

Asian financial crisis
The last time the developed-nation index won by this much to start a year was 1995. It went on to gain 47 per cent in the next three years, and the emerging-nation gauge fell 4.2 per cent through the end of 1997 after the Asian financial crisis.

While the MSCI World trailed the gauge of emerging nations by an average of 16 percentage points annually since 2001, it held up better during the financial crisis, losing 42 per cent versus 54 per cent for emerging markets in 2008.

Intensifying violence in Libya, holder of Africa’s largest oil reserves, pushed the MSCI Emerging Markets down 1.7 per cent today to 1,101.36 as of 5:20 p.m. in Hong Kong. The MSCI World slipped 0.8 per cent. Standard & Poor’s 500 Index futures fell 1.6 per cent from last week.