U.S. stocks top BRICs by most ever on emerging market flight

Revenue Exposure

U.S. companies that generate the most sales from Brazil, Russia, India and China have trailed the S&P 500. Firms taking in at least 20% of revenue from those countries climbed a median 13% this year, according to data compiled by Bloomberg on the 41 companies that disclosed financial data from the so-called BRIC nations.

Yum! Brands Inc., the owner of the KFC and Pizza Hut chains, counts on China for half its sales. The Louisville, Kentucky-based company slid 3% last week and posted a 13% decline in July same-store sales from China as diners remained reluctant to eat chicken amid an outbreak of avian flu.

Mosaic Co., the second-largest North American potash producer, has dropped 24% this year as Russia’s OAO Uralkali abandoned limits on output that underpinned prices and quit a trading venture with Belarus that controlled supplies from the former Soviet Union. Mosaic, based in Plymouth, Minnesota, gets about a third of its revenue from BRICs.

Stock Swings

As money shifted away from emerging markets, volatility diminished in U.S. equities. The S&P 500’s 30-day historic movement dropped 29% to 8.75 this year, while the measure for the MSCI measure of 21 developing nations surged 83% to 13.3, data compiled by Bloomberg show.

“Investors are going to go where they’re treated best and right now the U.S. stands out,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida, on Aug. 15. His firm oversees $100 billion. “A lot of bearish sentiment is building in emerging markets. Eventually once it reaches extreme, which I don’t think it has yet, it will provide a strong base for the markets to rally from.”

Cisco Systems Inc., the biggest maker of networking equipment, said last week that it’s cutting about 5% of its workforce amid weaker sales from overseas including China. The company’s ability to meet its long-term growth target of 5% to 7% a year will partly depend on emerging markets, according to Chief Executive Officer John Chambers.

‘Inconsistent Growth’

San Jose, California-based Cisco generates about 42% of revenue outside the U.S. and Canada. The stock tumbled 6.8% last week, the most since May 2012.

“The changes in macroeconomic conditions in the emerging markets, both positive and negative, are driving more inconsistent growth,” Chambers said on an Aug. 14 conference call. “We need some consistency there. We’re not seeing it.”

Capital is fleeing developing nations as China’s economy grows at the slowest pace in 13 years, India’s current-account deficit widens to a record, and persistent inflation in Brazil erodes purchasing power. The share losses are a reversal from the past decade, when the countries led gains during a commodity boom and rising consumption from the middle class.

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