The BRICS are 5 of the most important emerging markets. We analyze what they represent for the global economy. We also discuss reasons for investing in the BRICS and how to do it.
Content
Introduction
BRICS is a term used to refer to 5 emerging countries with a lot of economic and political influence in the world: Brazil, Russia, India, China and South Africa.
It is said the term was coined by Goldman Sachas at the beginning of the 21st century. Initially, it was only the BRIC countries. But years later South Africa was added to the group, as the best representative of the African continent.
Beyond being a commercial slogan, the BRICS actually exist as an organization. It is not an organization with as much integration as the European Union, NATO, or MERCOSUR.
But its member countries do meet on a regular basis to discuss their economic and geopolitical priorities, interests and strategies for the future.
If we look at the role these countries play in the world, we will realize that they are a fundamental part of the global economy. Together, the BRICS account for approximately 41% of the planet’s population, 27% of its land and 32% of its real GDP.
After all, within the group we have the two most populous countries in the world (China and India), the largest country in the world and key in the Eurasia region (Russia), the largest country in South America (Brazil) and the most advanced economy on the African continent (South Africa).
Another very interesting aspect is they are very heterogeneous when it comes to their size, strengths, economic models, and even demographic profiles.
On the economic front, China, Russia, Brazil and South Africa are relatively prosperous, while India can still be considered a third-world country with plenty of catching up to do.
When it comes to demographics, China and India are massive countries, Russia and Brazil very large, and South Africa medium-size. And as for their characteristics, while the population in China and Russia is relatively old, India and South Africa are very young countries, and Brazil somewhere in between.
Concerning their strengths, while the economies of Russia, Brazil and South Africa are highly dependent on the extraction and export of natural resources, China and India are more focused on the manufacturing sector.
For all these reasons, the idea of investing in the BRICS is very appealing. They offer a lot of growth potential with embedded diversification within the group.
Next, we analyze the main characteristics of each of these countries to better understand what they bring to the table.
The 5 BRICS Countries
Due to their heterogeneity, the best way to decide the order in which we will talk about them is to do it alphabetically:
Brazil
With more than 200 million inhabitants, Brazil is the most populous and largest country in South America. It is also its biggest economy. While it is not the most prosperous country in the region, it is undeniable that the economic progress achieved over the past few decades has been very remarkable.
Moreover, while demographic growth is slowing, Brazil still has a very young population. In fact, the most promising demographic profile is that of a population with a positive but low growth rate. Exactly like Brazil.
The South American country has vast amounts of natural resources. Some of the most important exports are oil, iron, copper, soybeans, coffee and cocoa. In other words, real goods. Something that can be very interesting for those investors who want to protect their wealth from the negative effects of inflation.
Another thing to note is that both its stock market and currency have been heavily punished over the last decade. As a result, valuations are very attractive.
Russia
Russia’s position in the international stage has suffered greatly since 2022. Even though their sphere of influence at the economic and geopolitical level is still important, it is not what it used to be.
Nevertheless, we will try to analyze what Russia has to offer to international investors without getting into geopolitical discussions. Hopefully that is something that will improve in the next few years.
Russia is one of the countries with the largest reserves and exports of a multitude of natural resources that are fundamental to our standard of living. Among them we can highlight oil, natural gas, coal, copper, iron, nickel, zinc, gold, platinum, phosphate, and even uranium and salt.
In other words, Russia is an economy that can really benefit from an inflationary period and a commodities super-rally.
In addition to that, another one of Russia’s strengths as an investment destination is its macroeconomic positions. Of the 5 BRICS countries, Russia has the healthiest public finances thanks to more than two decades of fiscal discipline after the country declared bankruptcy in the late 1990s.
India
While no one doubts China’s importance to the global economy, there are still many skeptics about India’s future role in it. However, if we analyze India in detail, we will realize that it is only about 3 decades behind China in terms of economic development.
India remains a very poor country. However, this can also be interpreted as greater long-term potential. The South Asian country is doing a good job to develop its economy and society.
Apart from that, we must bear in mind that India is set to overtake China in terms of population size in just a few years, with the added advantage that its citizens are, on average, much younger. This guarantees the presence of future workers and consumers, unlike China whose demographic profile resembles that of a developed nation.
When it comes to its equity market, India is far from cheap. Long-term investor expectations are very high. But there are many reasons to be optimistic about India’s future. For more details, check out this post: Why We Should Invest in India – Top 7 Reasons
China
The world’s most populous country and the second largest economy in terms of nominal GDP, China is a key element in the global economy. Furthermore, the Asian giant is set to overtake the United States as the largest economy in the world before the year 2030.
China has world-class companies, with robust businesses and high growth rates. The country has long prioritized economic development with the goal of lifting hundreds of millions of people out of poverty.
Therefore, there are many reasons why we would like to invest a portion of our capital in China. However, it is undeniable that there are significant political risks since this is a jurisdiction in which capitalism is subordinate to the interests of the government and the authorities.
Despite its flaws, China is and will be for a long time the most important country of the BRICS.
South Africa
Having joined the group in 2010, South Africa can be considered the junior member of the BRICS. This is because its population and economy are much smaller than those of the rest of the countries.
However, South Africa represents much more than that. We are talking about one of the most important economic powers on the African continent. And since Africa as a whole is likely to play a major role in the economy of the 21st century, South Africa is in a very good position to exert its influence.
With about 60 million people, and forecasts of future growth, South Africa’s economy is of considerable size. It is also well prepared for an inflationary scenario, having abundant natural resources, especially when it comes to mining.
Some of South Africa’s most important exports are platinum (it is by far the largest producer in the world), palladium, rhodium, gold, manganese, iron and even coal.
How to Invest in the BRICS
Let us now discuss different options of investing in the BRICS countries:
BRICS ETF
The easiest way to invest in the BRICS countries is to look for an ETF that invests exclusively in these 5 countries.
It is important to highlight the fact that there are more ETFs investing in the BRIC countries, excluding South Africa, than all five BRICS nations. This is because South Africa’s capital markets are small, with fewer companies and smaller market capitalizations. This makes managing a BRIC ETF much easier.
An example of such an ETF would be the iShares MSCI BIC fund, managed by Blackrock, which tracks the MSCI BIC stock index.
Although this is the most convenient way to invest in the BRICS, it also has a small disadvantage. Due to the size of the Chinese economy and capital markets, China represents a very large weight in these funds.
Under normal conditions, Chinese corporations will make up between 60% and 70% of any BRIC or BRICS ETF. Consequently, our exposure to the rest of the BRICS nations would be rather small.
If you want a significant exposure to all BRICS nations, look at the next section.
Country-specific ETF
If you want to invest in the BRICS with the option to decide how much capital you want to put into each of those countries, you can look for country-specific ETFs, i.e. an ETF tracking only one country.
For example, if you want to invest the same amount of money in each of these 5 countries, you simply need to put the same amount of money in 5 different ETFs. If you do this, it will not be difficult to find plenty of alternatives to invest in South Africa.
Of course, if you want to allocate a greater investment in the larger economies in the group, you can also do so. The biggest advantage of investing in country-specific ETFs for the BRICS nations is the flexibility in deciding which countries we like best.
To find out the most important stock market indices in each of these countries, you can check out the following section of this website: Funds and ETF
Individual Equities
The third option for investing in the BRICS countries is the one that gives us the greatest degree of flexibility: buying individual shares. This will allow us to decide where to invest our money.
Therefore, we can simply buy the shares of those companies that we like best or we think offer the most long-term potential.
This strategy requires more time to analyze and track our investments, but that is precisely what some investors want to do.
Conclusion
I hope you found this analysis about investing in the BRICS countries useful. As always, my goal is not to give you any direct recommendations, but to provide you with valuable information that will allow you to take the best investment decisions for yourself and be able to judge someone else’s recommendations.
The decision to invest in the BRICS should not be seen as binary, in that we have the option to either do it or not. It can simply be an allocation to emerging market equities in our portfolio. Or, if we so desire, an allocation to emerging market bonds.
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