Today we will look to highlight the growing significance of BRICS nations, and why your portfolio will benefit from exposure to these regions of the world.

 

Timing is fact everything. We were provided with evidence of that this week.

 

The largest-ever BRICS summit happened amid major geopolitical shifts, intense military conflicts in Eastern Europe and the Middle East, and ongoing geoeconomic changes in the world.

 

Top officials from 35 developing countries, including 22 heads of state, gathered in Kazan, Russia for the 16th annual BRICS summit, many of whom seek to formally join the association or cooperate with it in one form or another.

 

It’s arguably one of biggest geopolitical events of the year and a gathering. It was consequential not only because of the participants, but also because of the decisions that were made and the ongoing development of the BRICS association.

 

The Purpose Of BRICS

Before we assess the summit’s key developments, here’s our quick take on what BRICS is about.

 

• It’s a group of developing countries that seek to form a “multipolar world.”

 

• These nations think the period that began after the Cold War ended—when the U.S. became the sole major power and basically led the global order (a period often described as a “unipolar world”)—is in the process of shifting or has already shifted into a new era.

 

• They believe they deserve a bigger say in global affairs.

 

• They highly value national sovereignty and seek to strengthen it for their own countries.

 

• They seek a “just world order” and a “fairer” global system based on mutual respect and promote inclusiveness and consensus building.

 

• They desire deeper trade, financial, strategic, and cultural ties with each other.

 

• They support each other diplomatically where they agree. Where they don’t agree, they don’t exert excessive pressure on each other. They attempt to reason and persuade, not threaten.

 

• They don’t interfere in each other’s domestic affairs, and strongly object to when Western countries attempt to do this to their countries.

 

• They oppose what are called “unilateral economic sanctions” and secondary sanctions. Many BRICS members deem such sanctions as “illegal” because they are not approved by the UN Security Council.

 

• They are against using currencies—the U.S. dollar in particular—as a foreign policy weapon, and instead favor good old-fashioned diplomacy.

 

• They advocate reforming and improving—not eliminating—Bretton Woods-era global financial institutions such as the International Monetary Fund (IMF) and the World Bank.

 

• They believe the World Trade Organization has become dysfunctional and is badly in need of reform.

 

• They prioritize expanding the UN Security Council and restructuring other UN bodies to give countries in Asia, Latin America, and Africa a greater voice. They think Western-aligned countries should no longer have a disproportionate say in these bodies.

 

BRICS is not designed to be a formal political and economic bloc like the EU. In fact, its members flatly reject the term “bloc” and don’t seek to become one. They repeatedly assert that they’re “not against anyone.” India, in particular, does not want BRICS to be viewed as an anti-Western entity. Nor is BRICS designed to be a formal military security alliance like NATO.

 

There is no military component. Turkey’s participation in this year’s summit and desire to cooperate further with BRICS—the first and only NATO country to do so thus far—underscores this. If BRICS had military aims, any participation of a NATO country would be ruled out.

 

Some BRICS members, such as India, the United Arab Emirates, and Brazil, have very good relations with the U.S. and the collective West and intend to maintain strong ties.

 

Expansion Plans

Regardless of how one sees the BRICS association and the various countries involved, it’s impossible to brush them aside.

 

The group has signaled it intends to expand by inviting certain countries among those who attended the summit to become a “BRICS partner,” which would be a new, next step toward the full membership process.

 

There were more than 200 events this year with more to come. It’s also prudent to pay attention to BRICS members and any new partners given the dramatic geopolitical changes a number of these countries are involved in.

 

As the Chinese leadership likes to say - changes that have not been seen in 100 years.

 

Strength In Numbers

BRICS countries believe they deserve a bigger say in global affairs because collectively they have considerable economic heft and natural resources wealth, which they can translate into economic clout.

 

Bloomberg News noted this week, “The world economy is set to rely even more heavily on the BRICS group of emerging economies to drive expansion, rather than their wealthier Western peers,” according to the IMF’s latest forecasts.

 

The IMF expects by far the biggest contributions to global GDP growth from 2024 to 2029 in purchasing power parity (PPP) terms to come from China, followed by India and then the U.S.

 

The next tier is anticipated to be led by Indonesia, and then Russia, Brazil, Turkey, Egypt, Germany, Japan, and Bangladesh.

 

Among these 11 countries, all but the U.S., Germany, and Japan attended the BRICS summit.

 

The economies of the nine BRICS member states already exceed the size of G7 economies in PPP terms, and the IMF forecasts the gap to widen.

 

Agriculture

At the summit, BRICS members adopted Russia’s proposal to create a BRICS Grain Exchange. This initiative is the association’s most important development since four new members (Egypt, Ethiopia, Iran, and the United Arab Emirates) were added to the traditional grouping of Brazil, Russia, India, China, and South Africa in January 2024.

 

• Plans to roll out a new Grain Exchange demonstrate that BRICS is transforming into more than just a “club” of like-minded countries into an association that aims to incorporate practical platforms to advance economic interests and development.

 

• It underscores that deeper integration is a priority, and raises the potential that BRICS institutions could be created in the future to provide at least somewhat more structure to the association.

 

• The BRICS Grain Exchange will benefit developing countries that participate. The trading of grains and other agriculture commodities has been dominated by U.S. and other Western exchanges for decades, which effectively set prices globally, and much of the goods are traded in U.S. dollars.

 

According to BRICS members, this new exchange is being created with the goals of:

 

1. Forming “fair and predictable” grain prices
2. Shielding participating countries from price speculation and artificial food shortages
3. Protecting national grain markets from external interference
4. Increasing food security for participating countries
5. Facilitating grain trading in national currencies

 

The group left the door open to add other agriculture commodities to the exchange in the future.

 

BRICS member countries produce a considerable amount of grain; estimates from various aggregators of commodity production data range from 40 % to 54 % of global supplies. They also produce a significant share of the world’s meat, fish, and dairy products.

 

With the nine BRICS member states representing 45 % of the world’s population, they make up a meaningful portion of global grain consumption. It’s also notable that Russia has proposed to create a separate BRICS platform for trading precious metals and diamonds—more commodities currently dominated by Western exchanges.

 

Here too, BRICS countries have considerable production heft and resources.

 

The Next Step: Payments System:

Much work to be done BRICS members are working toward developing a blockchain-based system that would facilitate financial payments with each other.

 

BRICS country officials are quick to point out this is not designed to be an alternative to the Western-run global SWIFT system. It is simply intended to strengthen and enhance their own interbank communications systems.

 

Financial, central bank, technology, legal, and legislative experts from BRICS member countries need to sort through an abundance of issues in order to fully develop a BRICS payments system. Their work will be careful and deliberate; no one is going to run ahead of the locomotive.

 

Once the technical work is done, BRICS heads of state will need to make decisions whether to launch the system and determine their respective country’s level of participation. There is no ETA on this initiative.

 

A “BRICS single currency,” is still not being formally considered by BRICS members. It is unlikely that it will be anytime soon for a variety of reasons. Leaders and top officials have made this clear many times, including in Kazan.

 

Future Areas Of Cooperation

BRICS members are also proposing new initiatives and deeper cooperation on existing bilateral and multilateral partnerships, including:

 

• The development of transit corridors and logistics (North-South Corridor, Northern Sea Route, and Eastern Maritime Corridor);

 

• Electricity grid expansion, electricity transit among countries, and nuclear energy cooperation

 

• Developing a carbon trading system

 

• Preventative and advanced health care

 

• Artificial intelligence and cybersecurity cooperation

 

• Humanitarian areas such as cultural and sport cooperation.

 

They also plan to expand the New Development Bank (NDB) of BRICS by adding an investment platform. It seems that the goal is for this so-called “BRICS bank” to take on more characteristics of its much larger cousin, the World Bank’s International Bank for Reconstruction and Development, (IBRD).

 

More public funding and private investment from BRICS country sovereign wealth funds, which could benefit developing countries that are members of the NDB.

 

Developments at the BRICS summit in Kazan with this group of countries seeking to rebalance the global order, combined with the increasing trade protectionism of the U.S. since 2018, reinforces the view that the shift to a multipolar, more fragmented world argues for viewing portfolio allocations through a different lens.

 

Sub-asset allocations within equities and fixed income should no longer be viewed through the lens of cooperative globalization that occurred in previous decades.

 

That era is probably not coming back anytime soon.

 

This new era begs for more active asset management of country, industry, and company investment exposures. These trends pose challenges for European economic growth, and the headwinds are already visible.

 

Many strategically important industries seem poised to benefit from the geopolitical shifts that are taking place, but if protectionist trends in the West persist—like we think they will—global economic growth and equity market gains could be more muted than they were during the globalization heyday.

 

As always, please let me know if you have any questions or comments.