Developing countries from Brazil to China are expanding much faster than aging

Developing countries from Brazil to China are expanding much faster than aging economies in the U.S. and Europe, where borrowing during the boom years has been a drag on growth. So the smart money bought stocks in emerging markets, expecting that rapid economic expansion there would provide better rewards. This year, that bet hasn’t worked out.

The broadest measure of U.S. stocks, the Standard & Poor’s 500 index, is down just 0.4 percent this year. Markets in Brazil, China and the like have lagged far behind, even though their economies are still growing faster than the U.S.

“If you were anywhere in the world other than in the S&P 500 this year, you got crushed,” said Greg Peterson, director of research at Ballentine Partners, an investment advisory firm.

The main reason emerging market stocks have suffered deeper losses isn’t because their economies are suddenly sluggish. Analysts say it’s because people have been worried about the European debt crisis and a possible recession in the U.S. It may seem unfair, but when fear of another financial crisis strikes money managers, they tend to flee emerging markets and stay closer to home.

Consider the collection of emerging-market rising stars known as the BRICs, which stands for Brazil, Russia, India and China. All have economies whose growth exceeds the U.S.

— Brazil: The economy has expanded 3.1 percent over the past year. The benchmark Bovespa has lost 15.3 percent.

— Russia: Economic growth of 5.1 percent. The Micex has dropped 11.1 percent this year even after a 10 percent rebound in the past month.

— India: Economic growth of 7.7 percent. The BSE Sensex index is down 14.4 percent.

— China: Economic growth of 9.1 percent. The Shanghai Composite has slumped 10 percent this year.

By contrast, the U.S. economy has expanded 1.6 percent over the past 12 months. That’s sluggish compared to the developing world’s stars. And worries that the U.S. could slip into a recession, or that Europe’s debt crisis could tip it into one, have weighed on investors for months.

China and other emerging markets long relied on shipping toys, timber and other goods to consumers in the U.S. and Europe. Trade helped them grow. But that has a downside, says Tim Morris, a portfolio manager at J.P. Morgan’s asset management unit. When a small country hitches its fortunes to U.S. shoppers, it’s bound to suffer when the U.S. economy slows down.

via yahoo.com