Service Sector in Emerging Economies Remains Mixed in September


Nov. 20 2020, Updated 11:37 a.m. ET

Russia’s Service Activity Index stood at 51.3 in September 2015

The Markit Russia Composite Output PMI (Purchasing Managers’ Index) and Services Index rose to record levels of 50.9 and 51.3, respectively, in September 2015. The indices rose with a marginal increase in new business orders following a contraction in August. The work backlog decreased in September, indicating excess capacity, which may lead to more job cuts in Russia. The depreciation of the ruble against major currencies has resulted in an increase in cost inflation. With both input and output prices rising, inflation remains at high levels.

Although Russia has moved back to expansionary phase, its overall economic environment remains challenging with rising inflationary pressure. The VanEck Vectors Russia ETF (RSX) fell 28.9% on a YoY (year-over-year) basis as of October 5.

Over the past year, the iShares MSCI Emerging Markets ETF (EEM) has fallen 17.4%, and the Direxion Daily Emerging Markets Bull 3X ETF (EDC) has fallen 48.4%. Moreover, the Direxion Daily Emerging Markets Bear 3X ETF (EDZ) reported a rise of 25.2% as of October 5.

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Brazil Service Activity Index contracted to 42.7 in September 2015

The Brazil Composite Output PMI (Purchasing Managers’ Index) and Services Index contracted further to 41.7 and 42.7, respectively, in September 2015. The indices contracted the most in September due to weak demand conditions, a challenging economic situation, and difficulties in generating cash flows. Brazil’s depreciating currency, the real, has resulted in an increase in cost inflation. Input prices have risen sharply, and a decline in new work orders may lead to further job cuts in Brazil.

Over the past year, Brazilian stocks Petrobras (PBR) and Vale (VALE) have fallen 69.0% and 59.1%, respectively, as of October 5. Moreover, high inflationary pressures have impacted financial stocks Itaú Unibanco Holding (ITUB) and Banco Santander Brasil (BSBR), which have fallen 51.4% and 45.6%, respectively, for the same period. September’s contraction in both service activity and manufacturing is not a good sign for the crashing Brazilian economy. The iShares MSCI Brazil Capped ETF (EWZ) is currently one of the worst-performing ETFs among those focused on emerging economies. It has fallen 48.7% over the past year as of October 5.

Emerging economies remain mixed in September, with Russia expanding and Brazil contracting further. With high inflationary pressure, the depreciation of their domestic currencies against those of major economies is impacting these countries adversely.

To learn more about September’s economic activity, read “Poor September Production Data Drag Related Sectors Down.” For more information on the economic front in general, visit our global ETF analysis page.


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