Goldman Sachs closes their recommendation to buy a basket of US stocks with the highest BRICs Sales exposure (Bloomberg ticker: ) versus a basket with the most Domestic Sales (). Revised expectations for slower China growth (7.4% in 2013 and 7.7% in 2014) are reflected in bottom-up consensus estimates, which suggest the median BRICs basket stock will grow sales by just 3% in 2013 compared with 6% for GSTHAINT. GSTHBRIC returned 15.6% since recommended in late Nov. 2012 versus 17.5% for the Domestic Sales basket and 15.4% for the S&P 500.
Via Goldman Sachs presented without comment, besides this one line. Goldman invented the term BRICs now they are basically saying to sell the BRICs… interesting….
We are closing our recommendation to buy a basket of US stocks with the highest BRICs Sales exposure (Bloomberg ticker: <GSTHBRIC>) versus stocks with the most Domestic Sales (<GSTHAINT>) on lowered forecasts for China economic growth. The BRICs basket has returned 15.6% since we recommended the trade on Nov. 28, 2012, close to the 15.4% S&P 500 return but 190 bp less than the 17.5% for the Domestic Sales basket. We originally expected GSTHBRIC to outperform on increased confidence in the strength of EM economic growth relative to stocks with higher exposure to the US economy, where we expected a mid-year growth “hump” as a result of fiscal policy headwinds.
Last week our China economists lowered their 2013 and 2014 real GDP forecasts to 7.4% and 7.7%, respectively, from 7.8% and 8.4%. They also lowered CPI inflation forecasts to 2.4% and 2.6% on the basis of lower commodity costs and less domestic demand. For full details, see Asia in Focus, June 24, 2013.