Stocks of international companies that depend most on emergingmarkets for sales show developing nations won't be strong enough tobuoy the global economy.

Goldman Sachs Group Inc.'s gauge of U.S. companies with the mostdeveloping-nation revenue fell 15 percent since April, the biggestdrop since the bull market began in 2009. Avon Products Inc., whichgets at least 74 percent of operating profit from emerging markets,sank 15 percent in New York last month. Siemens AG, which doubledsales from the nations in five years, lost 21 percent in Frankfurt,the most since October 2008.

During the U.S. recession from December 2007 to June 2009, theBRIC nations of Brazil, Russia, India and China became the enginesof the global economy, with Chinese gross domestic productexpanding 7.9 percent even as America was still contracting. Whileemerging countries produced about 85 percent of global economicgrowth since then, China, India and Brazil are slowing after theylifted interest rates to curb inflation following at least $870billion of fiscal stimulus during the financial crisis.

“The policy-driven boom of the past couple of years will not berepeated any time soon,” said Stephen King, chief economist at HSBCHoldings Plc in London and author of “Losing Control: The EmergingThreats to Western Prosperity.” It's “difficult to see how emergingnations can ride to the rescue once more,” he said.

Slowing Demand
That's reflected in the stockmarket, where Avon and Siemens fell about twice as much as the MSCIWorld Index last month. With expansions faltering in the U.S.,Europe and Japan, slowing demand in Brazil, Russia, India and Chinameans more challenges to global growth. An index of Chinesemanufacturing was at 50.9, near a 29-month low, the ChinaFederation of Logistics and Purchasing reported today.

Some investors use an expanded BRICS grouping that includesSouth Africa after it was invited to join the group in December.Africa's biggest economy expanded an annualized 1.3 percent in thesecond quarter, its slowest pace in almost two years, data reportedon Aug. 30 by the statistics office show.

Emerging economies will probably “avoid a hard landing, but theywon't be able to bail out the world,” said Joachim Fels, chiefeconomist at Morgan Stanley in London. The bank cut its forecastlast month for developing-nation growth next year to 6.1 percentfrom 6.7 percent.

Avon, Whirlpool
Goldman Sachs's BRICs Salesindex, which includes shares of Avon, Citigroup Inc., WhirlpoolCorp. and 47 more companies, proved predictive four years ago,dropping 5.1 percent in the fourth quarter of 2007 even as the MSCIEmerging Markets Index rose 3.4 percent and analysts at MerrillLynch & Co. and Morgan Stanley said developing nations would“decouple” from the U.S.

Brazil and Russia fell into recessions and growth tumbled inChina and India. The BRIC gauge, whose companies rely on emergingcountries for about 50 percent of sales on average, sank 57 percentin 2008, data compiled by Bloomberg show.

From the end of July through the close of New York trading onAug. 30, the Goldman index lost 8.7 percent while the MSCI emerginggauge dropped 11 percent and the MSCI World index ofadvanced-country shares retreated 8.4 percent.

Avon, the world's largest door-to-door cosmetics merchant,reported a 4.5 percent decline in second-quarter revenue from Asiaand said growth in central and eastern Europe slowed to 5.4 percentfrom 9.7 percent a year earlier, when it published financialresults on July 28.

'On Track'
The company's shares have declined23 percent in the past 12 months, compared with a 16 percent gainin the Standard & Poor's 500 Index. Chief Executive OfficerAndrea Jung said on a July 28 conference call that the NewYork-based company's long-term strategy of focusing on developingcountries such as China and India is “on track.”

Citigroup, the third-largest U.S. lender by assets, gets morethan half its earnings from emerging markets, CEO Vikram Panditsaid in March. While second-quarter revenue from the consumerbank's Latin American and Asian units rose 13 percent to $4.46billion, profit fell 14 percent. Shares of the New York-based bankretreated 19 percent last month, more than the 11 percent drop inthe S&P 500 Financials Index.

Whirlpool, based in Benton Harbor, Michigan, relied ondeveloping nations for at least 32 percent of its second-quarterrevenue, according to data compiled by Bloomberg. The world'slargest appliance maker reported a 92 percent plunge in operatingprofit in Asia, more than the 62 percent decline in North America,the data show. Whirlpool's shares fell 8.7 percent in August,extending this year's retreat to 29 percent.

Siemens Growth
Siemens's expansion into emerging markets has contributed to an 11percent increase in marketing and sales expenses in 2011 from ayear earlier, the Munich-based engineering company reported on July28. CEO Peter Loescher said he still wants to grow in thesecountries, which comprised about 30 percent of revenue during theperiod. Siemens, whose products range from power turbines tomedical scanners, is valued at 12 times reported profits, thelowest level on a monthly basis since Bloomberg began compiling thedata in September 2002.

Demand is waning in developing countries as exports to the U.S.and Europe slow and tighter monetary policy curbs consumption athome. The cost of shipping 20-foot box-loads of manufactured goodsto Northern Europe from Shanghai has dropped 54 percent during thepast year as deliveries slowed, while rates for 40-foot boxshipments to the U.S. West Coast fell 35 percent, according to datacompiled by Clarkson Securities Ltd., a unit of the world's largestshipbroker.

Developed Nations
U.S. data last month showedthe world's largest economy grew 1 percent in the second quarter,slower than initially estimated, while German investor confidenceslid to the lowest level in more than 2 1/2 years in August.

“The bulk of emerging markets are still dependent ondeveloped-market growth, and that's not coming any time soon,” saidRajiv Jain, who oversees about $15 billion at Vontobel AssetManagement Inc., including the Virtus Global Opportunities Fund,which beat 99 percent of peers this year, according to datacompiled by Bloomberg.

Brazil unexpectedly cut interest rates yesterday following fiveincreases in 2011 as the risk of recession in Europe and the U.S.shifted policy makers' focus away from the fastest inflation in sixyears. The government is also trying to curb credit growth afterloans expanded by at least 19 percent for 12 straight months,leading to an increase in bad debt at lenders including SaoPaulo-based Itau Unibanco Holding SA.

Tax Cuts
Brazilian President Dilma Rousseffcut 50.7 billion reais ($32 billion) from the 2011 budget twomonths after taking office in January and Finance Minister GuidoMantega said on Aug. 29 that the government plans to halt a rise infiscal spending this year. Mantega and former President Luiz InacioLula da Silva used tax cuts and housing subsidies to help revivegrowth in 2009 and 2010.

China lifted borrowing costs three times this year and raisedbank reserve requirements six times to combat the effects of arecord lending and infrastructure-spending binge that helped revivethe global economy two years ago. Consumer prices climbed 6.5percent in July, the most in three years.

Fixed-asset investment growth slowed the past two months and newbank loans dropped to the lowest level this year in July. Chinadoesn't need another stimulus plan and should maintain currentfiscal policies, said Fan Jianping, director of economicforecasting at the State Information Center, according to a reportlast month by China's Securities Times.

Global Recession
Emerging-market policymakers have less room to stimulate demand after government budgetsmoved to a 2.7 percent deficit this year from a surplus in 2007,according to Nick Chamie, the head of emerging markets research atRBC Capital Markets in Toronto.

RBC and Morgan Stanley cut their estimates for global andemerging-country expansions last month amid a selloff in equitiesthat wiped out almost $5 trillion of market value. The worldeconomy has a 50 percent chance of slipping into recession, MichaelSpence, a professor at New York University's Stern School ofBusiness who won the Nobel Prize in economics in 2001, said in anAug. 25 interview on Bloomberg Television.

Falling growth expectations in the developed world and lowerfood and energy prices will ease inflation in emerging markets andallow central banks to stop tightening monetary policy, said JimO'Neill, the chairman of Goldman Sachs Asset Management who coinedthe term BRIC to describe Brazil, Russia, India and China in2001.

Surprise Cut
The S&P GSCI Spot Index ofcommodities fell 2 percent last month. China let the yuanstrengthen 0.9 percent against the U.S. currency in August, makingdollar-denominated commodities cheaper.

The board of Brazil's central bank voted yesterday to cut thebenchmark interest rate by a half point to 12 percent. All 62analysts surveyed by Bloomberg had forecast rates would be left onhold. Turkey's central bank left its main interest rate unchangedat a historic low on Aug. 23 after a surprise cut three weeksearlier and said there may be more reductions ahead.

Increasing trade between emerging economies will lessendependence on the developed world, according to Citigroupeconomists. They forecast trade between emerging economies willjump to 48 percent of the global total by 2030 from less than 25percent today.

Grow at Home
“I expect a shift back to theemerging markets and that Asia and China will lead the way,” KirkHartman, chief investment officer of Wells Capital Management inLos Angeles, said in an Aug. 25 interview on Bloomberg Television.“I like the multinationals.”

Slowing economic growth will curb earnings at companies thatrely most on buoyant global demand, according to Vontobel's Jain,who's avoiding industrial companies and commodity producers. Heowns consumer staples stocks including ITC Ltd., the Kolkata-basedcigarette maker, and Cia. de Bebidas das Americas, Brazil's largestbrewer, in part because they can boost sales even as the economyslows.

ITC has climbed 15 percent in 2011 and profits may increase 19percent during the company's current fiscal year, according to theaverage of 10 analysts' estimates compiled by Bloomberg. Shares ofAmbev, as the Sao Paulo-based brewer is known, have advanced 6.9percent and earnings are poised to grow 16 percent, according tothe average forecast compiled by Bloomberg.

“Sustainable, quality growth is very narrowly available,” Jainsaid. “A big part of the emerging-market world is extremely exposedto what's happening in the U.S. and Europe.”

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