What was the hottest acronym in investing has in the course of the past year become a group of BRICs weighing down investment portfolios. Shares listed in emerging markets, as represented by the heavyweights of the pack - Brazil, Russia, India and China - have had a dreadful 12 months.
Chinese share prices have been down about 20 per cent in the past year. Russia and India are flat.
Brazil is the only one to have given a decent performance in the past year - returning more than 10 per cent.
The four are the largest emerging markets economies. They account for almost 3 billion people, or slightly less than half the world's population. China has the largest economy among the BRICs and is on track to become the biggest economy in the world, perhaps as early as 2030.
A senior investment analyst at Lonsec, Steven Sweeney, says the poor returns have prompted a bout of head scratching from many emerging-markets investors. They are faced with the "nonsensical reality" of US and European shares outperforming emerging markets. US shares have been about 20 per cent higher in the past year and about 12 per cent higher since the beginning of the year.
British shares are about 10 per cent higher for the year and even euro zone shares have held steady in the past year.
Yet the economic fundamentals of the BRICs and the euro zone could hardly be more different. The euro zone debt crisis is in its third year, while the public finances of the BRICs are relatively good.
The US economy may be growing at an annualised 2 per cent, but company profits have grown rapidly in the past three years.
Perhaps another reason for the rally in US shares is that they have done nothing since the tech wreck of 2000. The stabilisation of European share prices is harder to explain. Maybe it is just relief that things could not get much worse and the rally may be short-lived. Australian share prices have been trading within a narrow range for the past year.
The argument for investing in emerging markets shares and global shares generally is not because they will produce spectacular returns.
It is to diversify an investment portfolio and lessen the impact of possible ongoing lacklustre returns from Australian shares.
It is the changing dynamics of the Chinese economy that will have the most profound implications for Australian investors.
"As China shifts gear from an export-led to a domestic-consumption-driven story, it may be increasingly difficult for Australian investors to gain exposure to the Asian consumption story through holdings in Australian resource stocks," Sweeney says.
He says there are signs of dampening demand for Australian resource stocks as the commodity cycle appears to have peaked. "This shift may reduce the Australian equity market's historical performance correlation with emerging markets."
The other mainstay sector of the Australian sharemarket, banking, appears to be at the top of the cycle. Lending remains subdued as consumers stay cautious. The arguments for diversification away from Australian shares have rarely been stronger.