The FTSE 100 Is Set To Beat Brazil, China And Russia

As the World Cup approaches, nobody rates England’s chances. Scotland, Wales and Northern Ireland aren’t even there. In football, the British aren’t exactly world-beaters.

When it comes to investing, however, we’re in with a shout, with the UK economy racing ahead of the emerging market giants who dominated the last decade.

Beating The Big Boys

Big guns Brazil, China and Russia are shorn of star quality right now. Like ageing footballers, they’re showing signs of slowing down, according to latest OECD data.

Britain, by comparison, “is steadying at unusually strong growth rates”.

The OECD published its report shortly after government figures showed UK industrial output had leapt 3% in the past 12 months, beating analyst expectations.

Finally, Britain looks like a winner.

The FTSE 100 has thrashed Brazil, China and Russia over the last 12 months to return 15.61%, according to MSCI. That is more than double the growth rate on the Chinese stock market, which returned 7.34%. Russia and Brazil fared even worse (see table). 

This isn’t merely a flash in the pan. The UK also conquers over three years, returning 7.01% while the other three all delivered negative returns.

Country 1-year return 3-year return
UK 15.61% 7.01%
Brazil 2.16% -11.66%
China 7.34% -1.47%
Russia 5.23% -9.96%

Source: MSCI

The Indian Exception

Britain isn’t beating all the BRICs. India, is up almost 24% over the past year, as markets recover from the country’s political and currency turmoil. Over three years, Britain still wins easily.

The UK looks well placed to outperform, given the problems facing Brazil, China and Russia.

Brazil Loses Its Flair

In March, S&P downgraded Brazil’s credit rating to triple-B-minus. JP Morgan recently reported “a consensus that the fundamentals are so bad they are even off the radar”. The World Bank has just cut its forecast growth rate from 2.4% to 1.5%. Sentiment could improve if October’s election delivers a more market-friendly alternative, but there’s a world of risk in-between. 

China Crisis

The World Bank also downgraded China’s growth forecasts, if slightly, from 7.7% to 7.6%. Even this depends on the success of the government’s rebalancing efforts, as it seeks to contain credit and property bubbles without destroying growth, and shift the country from an export-led to a consumption-based model. 

Russian Gloom

The World Bank is also down on Russia, predicting 0.5% growth, far lower than the 2.2% it forecast in January. Ukraine, naturally, is to blame, as the threat of US sanctions continues to hang over the economy.

Brazil, China and Russia are likely to find the going even harder as the US Federal Reserve continues tapering, draining emerging markets of yet more liquidity. 

By contrast, the UK economy is “stirring into life”, the World Bank says, predicting growth of 3.4% next year, rising to 3.5% in 2015.

Don’t just watch from the sidelines; you can participate in the UK recovery by buying a low-cost FTSE 100 tracker such as iShares Core FTSE 100 Ucits ETF (LSE: CUKX) or db x-trackers FTSE 100 Ucits ETF (LSE: XDUK). 

With the market trading at a reasonably priced 14.22 times earnings, and offering a yield of 3.5% a year, now could be a good time to get stuck in.

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Harvey doesn't own any company mentioned in this article