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It was only a few years ago that the BRIC nations, which include Brazil, Russia, India and China, were supposed to be the next major global investment theme. These underdeveloped nations were growing their GDP at high rates, representing the premier emerging markets of the new century.
Today, the BRIC theme has been severely fractured. While India and China are still among the world’s fastest-growing economies with rising middle classes, Brazil and Russia have fallen off the pace. Due to the massive plunge in commodity prices over the past two years, Brazil and Russia are no longer viewed as among the world’s most promising emerging markets. In all likelihood, their gross domestic product will decline in 2015.
Among the BRIC nations, all of them are projected to grow GDP this year. According to forecasts compiled by the World Bank, India and China are once again expected to grow at high rates, up 7.9% and 7%, respectively. Brazil and Russia are projected to grow GDP by 1.1% and 0.7%, respectively, which is weak growth but is still a good sign if they can avoid economic contraction given the huge declines in commodity prices, which are vitally important to their economies.
Below, Dividend.com discusses stocks from India and China that are still worth buying, and stocks from Brazil and Russia that may be candidates to short.
India is projected to grow its gross domestic product by 7% for the year 2015. One of the best stocks to buy to capitalize on India’s GDP growth and booming economy is Infosys Limited (INFY ). Infosys provides business consulting, engineering, and outsourcing services around the world.
Infosys is growing at high rates and has seen a prolonged period of success. Revenue increased 5% in fiscal 2013 and 11% in fiscal 2014. In fiscal 2015, it grew 5% to nearly $8 billion. The company is off to a good start for fiscal 2016, with revenue growing 8% year over year. Infosys was helped by a strengthening dollar as the majority of its revenue is denominated in USD.
Infosys is a strong dividend stock pick as well. The stock currently pays a dividend which yields more than 5%.
Meanwhile, China is also a high-growth economy. Recently released economic data showed that China’s GDP grew at a 6.8% annualized rate. While many investors are selling Chinese equities based on the economic slowdown there, the nation’s high GDP growth rate is still compelling for investment. A strong dividend stock pick from China is NetEase, Inc. (NTES ). NetEase operates an interactive gaming community in China, including mobile games and online role-playing games. These games are extremely popular and NetEase’s rapid growth reflects this.
NetEase’s revenue reached $1 billion last quarter, which more than doubled on a year-over-year basis. Revenue grew 46% from the previous quarter alone. The biggest contributor was its online gaming segment, which grew revenue by 124% last quarter, year over year. NetEase pays a dividend which yields 1.5%. It has a low payout ratio, less than one-third of earnings, so the company should have no trouble increasing its dividend in the future.
Russia’s GDP contracted 3.7% last year, while Brazil’s GDP is expected to contract by 3% in 2015. Meanwhile, due to the declining economies in both of those countries, we could see some compelling short candidates. In Brazil, an interesting short candidate may be Petrobras (PBR ). As Brazil’s major oil company, Petrobras’ share price has declined by more than 50% in the past year. Similarly, Russia’s large oil company, Gazprom, has lost 25% of its share value in that time.
As commodity prices decline, their earnings are collapsing. Gazprom lost $26 million last quarter and its gas revenue from Europe declined by 25% last year. Petrobras is doing even worse. It lost $1 billion just last quarter and has recorded losses in three of the past five quarters. Petrobras and Gazprom have been very profitable shorts already and further gains may be possible from shorting the stocks if the companies are forced into reorganizations to restructure their debt. Borrowing costs for Petrobras tripled last quarter. If oil and gas prices do not recover, these two companies will continue to lose billions.
India and China are still attractive for investment. Thanks to their above-average GDP growth, they each have booming consumer classes that should provide strong earnings growth for Infosys and NetEase.
At the same time, since both Brazil and Russia dearly depend on commodities, including oil and gas, their economies have taken steep falls over the past two years. Publicly traded companies from Brazil and Russia are near the brink of collapse, which is why Gazprom and Petrobras are possible short candidates.
For a complete list of foreign stocks that pay dividends, click here.