Although emerging market worries are jolting global financial markets, Fortune 500 companies’ revenue exposure to BRIC economies dipped in 2013 for the first time since at least 2008, a move that likely portends a trend for at least the foreseeable future.
The average percentage of those companies’ exposure to Brazil, Russia, India and China—the so-called BRICs—fell to 7.47 percent in 2013 from 7.72 percent the year before, although still above the 7.27 percent in 2011, according to provider FactSet. That percentage, which represents the companies’ sales to customers based in those countries, was a 5.63 percent in 2008, when developed economies were contracting but developing ones were still chugging along healthily.
The percentage drop between 2012 and 2013 of 3.24 percent was even greater for the top 10 percent of BRIC-exposed companies, at 5.78 percent.
Srinivas Thiruvadanthai, an economist at the Jerome Levy Forecasting Center, said that was unsurprising, given “the top 10 percent has the most to lose.” Mr. Thiruvadanthai attributed the drop in part to the BRICs’ weaker currencies and more importantly to their weaker economies, which in the case of China have been impacted by the significant drop in exports to developed countries in the wake of the financial crisis and their recessionary economies.
The International Monetary Fund (IMF) records the emerging markets’ gross domestic product (GDP) plummeting to 5.8 percent in 2008 from a high of 8.7 percent the year before, and to a low of 3.1 percent in 2009. Their GDP jumped to 7.5 percent in 2010 but proceeded to trend downward, to 6.2 percent in 2011 and 4.9 percent last year. The IMF projects their GDB rising only slowly in the years ahead, to 5.5 percent by 2018.
Mr. Thiruvadanthai said the increase in 2010 was the result of significant fiscal and monetary measures by the BRIC governments—in the case of China mostly fiscal—to generate economic activity. Depressed exports, however, have continued to take a toll on local companies, resulting in reduced consumer spending among their employees as well as Chinese companies reducing their purchases of equipment from outside the country. He noted that while capital expenditures can be difficult to measure in those countries, weaker revenues from companies such as Caterpillar illustrate the drop in demand for construction equipment by Chinese companies.
“This is structural and secular problem, and not something that’s going to go away, at least in the near future,” Mr. Thiruvadanthai said, adding that the BRICs had been investing heavily in export-driven industries and now suffer from overcapacity. He noted that the BRICs are beginning to experience negative consequences from efforts to counter global recessionary pressures. In China the significant spending on infrastructure projects has resulted in an opaque and potentially volatile shadow banking industry as well as significant corruption. India and Brazil also pushed interest rates down, resulting in significant inflation.
Among the BRICs, the Fortune 500’s revenue exposure fell the most to China, and among industry sectors their exposure dropped the most in information technology, materials, industrials and consumer staples.