Brazil, China, other markets trailing US

Associated Press

NEW YORK

It sounded like a can’t-miss proposition: Buy the winners, drop the losers.

Developing countries from Brazil to China are expanding much faster than aging economies in the U.S. and Europe, where borrowing during the boom years has been a drag on growth.

So the smart money bought stocks in emerging markets, expecting that rapid economic expansion there would provide better rewards.

This year, that bet hasn’t worked out.

The broadest measure of U.S. stocks, the Standard & Poor’s 500 index, is down just 0.4 percent this year. Markets in Brazil, China and the like have lagged far behind, even though their economies are still growing faster than the U.S.

“If you were anywhere in the world other than in the S&P 500 this year, you got crushed,” said Greg Peterson, director of research at Ballentine Partners, an investment advisory firm.

The main reason emerging market stocks have suffered deeper losses isn’t because their economies are suddenly sluggish.

Analysts say it’s because people have been worried about the European debt crisis and a possible recession in the U.S.

It may seem unfair, but when fear of another financial crisis strikes money managers, they tend to flee emerging markets and stay closer to home.