Global Recession Results in Minor Change in Structure of Global Equity Market
Russell Investments global-relative index methodology has revealed disparity in the four Brazil, Russia, India and China (BRIC) countries.
Russell’s senior research analyst Mary Fjelstad’s recent report, ‘BRIC countries after Russell Index 2009 Reconstitution’, examines the performance of the Russell BRIC Index (which reflects the equity markets in the BRIC countries) after this year’s rebalancing, in light of the credit crisis. From an index perspective, Fjelstad has found that the past year’s substantial loss of value and economic upheaval that affected all styles, sectors and countries have resulted in very little change in the structure of global equity markets.
“Last fall the markets had a fundamental reset and the US market growth continues at a slow rate. It makes sense that the new growth will have to come from BRIC and emerging markets,” said Stephen Wood, Russell’s chief market strategist, North America. “Investing in the BRIC countries seems to be a controlled risk over the next few years, as consumer consumption shifts from the first world to emerging markets.”
The Russell Global Indexes, including the Russell BRIC Index and Russell Emerging Markets Index, are constituted by global-relative methodology, which creates index membership by cap-tier and region, regardless of a company’s country of origin. Through this methodology, Russell observed that Russia had the greatest reduction in weight due to its positioning in Europe and exposure to the energy sector, with China and India still holding the greatest advantage.
Although rewards to sectors were quite different, the overall global sector structure saw little change. Among the BRIC countries’ sector structure, Russia exhibits the greatest stability, and continues to be dominated by energy. Brazil and China experienced a shift out of materials and processing towards financial services. While India also shifted away from materials and processing, the major sector increase was from energy.
“Looking at the markets long term, it is important to diversify your portfolio and prepare for a marathon instead of a sprint,” added Wood. “Often that means rejecting your home-country bias and looking abroad.”