Many investors intrigued by potential investment opportunities in developing countries often turn to BRICS. The term is an acronym for a group of large emerging market countries: Brazil, Russia, India, China, and South Africa.
Other companies have recently joined this group, increasing their share of the global economy.
What are BRICS?
The original acronym (without the “S”) was coined in 2001 by Goldman Sachs economist Jim O'Neill to represent the analysis group. He said the first four countries – Brazil, Russia, India and China – have the potential to grow rapidly and become economies comparable to developed markets. The four countries liked the idea of being seen as a powerful bloc and began meeting informally in 2006.
The group held its first official meeting in 2009 and was joined by South Africa in 2010. Countries are now working together to exert geopolitical power that reflects their growing economic influence. In January 2024, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE) joined the group. Argentina was also invited but did not accept.
In some ways, the BRICS are an odd combination given their different political and economic strengths and weaknesses. While the four former member states have fairly large economies, the economies of South Africa and the new member states are mostly much smaller. But even the large BRICS economies are not just smaller versions of developed market countries.
BRICS size and growth
World Bank data as of 2022
China is the largest economy among the BRICS and ranks second in the world after the United States, with a GDP of approximately $18 trillion in 2022, almost 18% of global GDP and 30% of global manufacturing. occupies The GDP growth rate in 2023 will be 5.2%, exceeding the 3% growth rate in 2022.
India's GDP will reach $3.4 trillion in 2022, making it the world's fifth largest economy. It is also one of the fastest growing countries among the BRICS, with 7.2% growth in 2022. According to World Bank data, Brazil is her 11th largest economy in the world. The GDP was $1.9 trillion, with a growth rate of 2.9% in 2022.
Russia's economy remains the world's eighth largest at $2.2 trillion, even after shrinking by 2.1% in 2022, largely due to sanctions imposed by Western countries after the invasion of Ukraine.
South Africa's economy, ranked 38th in the world, is the smallest among the BRICS countries, with an economic size of $405 billion in 2022, growing by 1.9%. Ethiopia is the smallest overall, with a GDP of just $126.8 billion.
The two newest BRICS countries, Saudi Arabia and the United Arab Emirates, have much larger economies than South Africa, mainly because they are major oil exporters. Saudi Arabia ranks 17th among the world economies with $1.1 trillion, while the UAE ranks 28th with $507 billion.
Investing in BRICS with ETFs
For US investors, the easiest and cheapest way to invest in BRICS is through exchange-traded funds (ETFs). Like all ETFs, BRICS-focused exchange traded funds invest in a basket of stocks to track a stock index. Index providers create and maintain stock indexes. Its components are selected because they are deemed representative of sectors, geographies, or specific characteristics that investors wish to access.
Although shares of many large BRICS companies are traded on the US market, ETFs are probably the best way to invest in BRICS for most US investors. ETFs offer better diversification than buying individual BRICS stocks in the US, and are much easier for individual investors to buy and sell than trading stocks on foreign exchanges.
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There are many BRICS ETFs to choose from. Many major index providers, including FTSE Russell, MSCI, and S&P Dow Jones, some broadly including the entire BRICS, have announced that they will be closed in March 2022 after Western countries imposed sanctions against Russia. Russia was removed from the index. As a result, Russia has been removed from many broader BRIC indexes and Russia-specific ETFs are no longer traded. One of the major ETFs, the iShares MSCI Russia ETF, is in the process of liquidation.
Several multi-BRICS ETFs also exclude China, reflecting investors' concerns about the Chinese government's human rights record and inconsistencies in the areas of corporate independence.
“With so many emerging market ETFs currently available, many investment professionals “deconstruct” BRICS, choosing only those economies they believe are highly investable, such as Brazil and India, and Countries considered to be too high risk are excluded. ” said Richard Ward, chief investment officer at Curated Wealth Partners, a registered investment advisory firm in El Segundo, California.
Currency risk and BRICS
In addition to the risks associated with investing in stocks, it is important to remember that investing in the BRICS ETF also involves currency risk. This is because the prices of the securities that are part of the Fund are denominated in the respective national currencies. Compared to the US dollar, BRICS currencies tend to be more volatile than the dollar's relationship with other developed country currencies such as the euro, British pound, and Japanese yen.
The reasons for currency fluctuations in BRICS vary from country to country, but are often due to the nature of the economy. Because they are often dependent on exports of primary products, the fortunes of BRICS typically fluctuate more than most developed countries depending on the state of the global economy.
Additionally, many of the BRICS influence the interest rates that foreign lenders charge when extending credit to governments in the form of hard currency loans (loans that must be paid in stable “hard currencies” such as the euro or the U.S. dollar). Facing possible political challenges. And companies. If BRICS pays high interest rates to borrow and the economic outlook worsens, the value of their currency tends to decline as they struggle to service their debts.
Owning a diversified portfolio of BRICS ETFs or all BRICS ETFs can help reduce country-specific risks.
Frequently asked questions (FAQ)
Investing in the BRICS ETF is as easy as investing in any exchange-listed stock or ETF. You can buy or sell the BRICS ETF at any time during the trading day through your brokerage account.
Like any investment in stocks, owning shares of the BRICS ETF is subject to market risk and their value may decline. Because the underlying stocks are not U.S.-based companies, there is also the risk of fluctuations in relative currency values, which may affect the prices of the stocks that make up the ETF's underlying index. There are also political risks, such as sanctions imposed on Russia, which would result in the country being removed from major indexes. However, investment managers said the move would have little impact on the overall performance of most investors' portfolios, as Russian stocks make up a very small portion of the index.
Investors can track the performance of the BRICS ETF on an easily accessible, free financial news and information website. If you own shares of the BRICS ETF, you can also track its performance directly from your brokerage account.
Short-term investing is often a euphemism for speculation. The economies of many BRICS countries are less diverse than those of developed countries and are therefore often more affected by price fluctuations in the natural resources and goods they depend on or export. These changes can affect the value of a country's currency and have many effects, including an impact on the value of individual securities. As a result, the BRICS ETF may become more volatile, which could lead to losses in the short term. But in the long run, volatility can be just a bumpy road to greater value.
