BRICS+ implications for investors in 2024

19th Jan, 2024

11 min read

GTN - Brics expansion strengthening

Imagine a world where you could invest in booming economies besides the usual suspects like the US or Europe. That’s the potential that the BRICS+ group, a rising alliance of fast-growing nations like Brazil, Russia, India, China, and South Africa (plus some exciting newcomers) offers to investors worldwide. 

BRICS emerged as a coalition of major emerging economies through informal discussions in the early 2000s. Part of what makes the BRICS still relevant to this day is the inclusion of its newest members: Saudi Arabia, Iran, Ethiopia, Egypt, and the United Arab Emirates. By virtue of their technological advancements, natural resources, strategic locations, and collective economic power, the now so-called BRICS+ possess the ability to influence global dynamics on a much greater scale.  

China’s renewable energy investments within BRICS+ are expected to reach $5 trillion by 2030, while India’s tech startup ecosystem boasts over 80 unicorns – presenting potentially high-growth investment options. Infrastructure initiatives like China’s BRI offer opportunities in construction materials, engineering services, and logistics. 

The expansion of the BRICS has led many to wonder what impact the collective may have on Asian countries, especially those part of the Association of Southeast Asian Nations (ASEAN), which include Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam. ASEAN members have long held strong economic ties to Western nations – but the BRICS’s growing collective geographic and economic reach may challenge the West’s stronghold on the ASEANs. 

Think of BRICS+ as a club for fast-growing economies. By working together, they’re making it easier for businesses to trade with each other, which means more jobs, more innovation, and potentially bigger profits for investors. As the BRICS+ accelerate their collective growth and challenge Western economic strongholds, could the ASEAN collective and Asia as a whole benefit from the BRICS+, too? 


A sure way to increase trade volumes 

BRICS+ intra-trade is projected to reach 40% of total trade by 2030, up from 25% in 2022, driven by factors like preferential trade agreements and supply chain diversification. This shift suggests potential disruption in traditional trade routes and presents opportunities for investment in logistics infrastructure and alternative supply chain solutions. In 2022, their trade hit a record high of $135 billion, and it’s only going to keep growing. Meanwhile, New Delhi’s trade deficit with Beijing crossed the US$100 billion mark for the first time. Despite frosty political relations, bilateral trade remains steady. The main products that China exported are computers, smartphones, and semiconductors, while India exported iron ore, refined petroleum, and raw aluminium.  

Similarly, according to data from the China General Administration of Customs, in 2022, bilateral trade between China and Brazil reached US$165.6 billion, an increase of 8.1% year-on-year. In April 2023, the two countries signed multiple trade agreements to boost this further, resulting in bilateral trade reaching US$13.85 billion in June 2023. These figures suggest that trade levels are stable and continue to increase, with further potential improvements on the horizon. The main products that Brazil exports to China are iron ore, soybeans, and crude petroleum, while China exports semiconductors, office machines, and smartphones. The agreements signed in April will increase collaboration further on a range of other trades, from aerospace development to infrastructure investment. Trade relationships among the original (and soon-to-be) BRICS nations are diminishing their reliance on the West, thus reducing the political or economic leverage the latter has had previously. This is particularly prevalent in industries that are caught up in the US-China tensions. 


A note about US-Sino semiconductor tensions

Although the US has been on a quest to prevent China from accessing high-end chips by creating the Chip4Alliance with South Korea, Taiwan and Japan, many analysts predict that China will successfully expand its semiconductor industry nonetheless thanks to demand from its BRICS+ members. 

It has been reported recently that China has been quietly hiring overseas chip talent to accelerate its technological proficiency onshore. 


What the inter-BRICS + relationships means for the ASEAN group 

As collaboration between the member states tightens, they find new ways to reduce reliance on Western partners. This could make the BRICS+ valuable partners for the ASEAN bloc, particularly for transportation, energy, telecommunications and for other cross-sectoral initiatives. Russia and China especially already have strong ties to ASEAN, with Russia celebrating 10 years of strategic energy partnership with Vietnam in 2022, and China’s BRI. 

While BRICS+ offers diversification away from traditional Western markets, institutional investors must consider geopolitical risks within the alliance and potential currency volatility. Implementing hedging strategies and diversifying across multiple BRICS+ nations based on risk profiles can mitigate these risks. 


Where alliances could be forged: Oil and gas 

For decades, the Organization of the Petroleum Exporting Countries (OPEC) has dominated the global oil market. Now, the BRICS+ nations own more than 40% of the world’s oil production and possess over 50% of its oil reserves. When Russia was hit with global sanctions and embargoes following its invasion of Ukraine in 2022, it was able to trade with fellow BRICS members, especially India and China, who ramped up their imports of discounted Russian crude oil – signalling another act of defiance against Western influence. 

Western sanctions included an oil price cap mechanism which served to limit revenue for the Kremlin and restrict Russian flows to the global market. In actual fact, this led to Russia becoming India’s leading source of crude oil imports. Russia now accounts for about 40% of India’s crude imports; meanwhile, China has signed substantial oil supply agreements with Russia, including the development of new pipelines like Power of Siberia 2. This infrastructure not only deepens their energy ties, but also allows redirected gas flows, originally destined for Europe, to reach China. In September, Russia shipped its first oil cargo to Brazil as it seeks to diversify buyers further.  

Furthermore, Urals crude oil has consistently traded at a substantial discount of over $20-$30 per barrel compared to ICE Brent throughout the majority of 2022, and this discount will persist for the foreseeable term ahead. This has proven highly advantageous, particularly for the BRICS nations that are actively engaged in the trade. Such favourable pricing dynamics contribute significantly to the reduction of inflation, as lower oil prices translate into decreased costs for goods and services. This reduction in inflation, in turn, facilitates economic growth, as lower oil prices release resources that can be redirected towards other essential expenditures, fostering increased economic activity and prosperity.  

These alliances could extend further into Asia as well which would be highly attractive as many southeast Asian countries are experiencing rapid economic growth and industrialisation. This rapid growth has cultivated an appetite for cheaper energy sources to power factories, infrastructure, and transportation systems. 


More alliances: infrastructure 

Infrastructure development lies at the heart of the BRICS+ vision for shared prosperity and regional stability. The collaborative infrastructure initiatives within this alliance serve as a tangible demonstration of their commitment to nurturing economic growth, alleviating disparities, and fortifying regional connectivity, something the ASEAN bloc could benefit from with the inclusion of more members into the BRICS alliance. 

China’s BRI is a prime example of an initiative that fosters global connectivity, enhances trade facilitation, and promotes economic progress. As of August 2023, 155 countries – many of them in Asia – have entered into cooperative agreements with China, and effectively giving China leverage globally in several aspects of its ongoing opposition to the West. These agreements involve the development of supply chains through the construction of road networks, railways, ports, as well as complementary infrastructure and operational systems. While the initiative primarily focuses on Asia and Eurasia, it also extends to the Middle East and Africa, with certain routes stretching to Latin America. As they continue to forge new partnerships and navigate the intricacies of infrastructure development, BRICS+ countries are set to exemplify the extraordinary power of collective action in shaping the future of infrastructure development. 

China’s BRI now spans across almost the entirety of the Southeast Asia. For the emerging nations such as Cambodia, Vietnam, it has been an opportunity to accelerate modernisation. For one, during 2012-2017, China invested over US$15 billion, including US$11 billion alone in the energy sector, in building the infrastructure of Cambodia. The infrastructure also included roads/expressways, ports, and airports. The US$1.9 billion expressway, which links Phnom Penh with Sihanoukville, a port town and vacation destination, is located 12 km from the Sihanoukville Autonomous Port (PAS), the sole international and commercial deep seaport of Cambodia (where some 90% of Cambodia’s imports and exports transported by sea pass through).  

Similarly, for Vietnam, the BRI is poised to bring about not just economic development, but also foster the growth of export-oriented sectors, particularly the textile and garment industry. This industry has consistently expanded alongside Vietnam’s economy, playing a pivotal role. In 2019, the total value of textile product exports surged by 16.7% year-on-year, reaching approximately $30 billion and accounting for 12.5% of the national export turnover   The Vietnam textile and garment sector, with its export activities, currently relies heavily on various key factors, including globalisation, market accessibility, supply chains for materials and accessories, efficient logistics, and up-to-date technology – all of which are expected to be met by the BRI. Conversely, there are concerns that the BRI may bring forth various challenges, such as heightened domestic market competition and adverse environmental impacts due to the establishment of textile factories by BRI investors in Vietnam. 


Any downsides for the ASEAN bloc? 

While BRICS+ offers new economic opportunities, it may also result in increased competition within the ASEAN group, especially in manufacturing, technology and agriculture, as they vie for export agreements, foreign direct investment and access to global markets. 

What role exactly the ASEAN and other Asian countries will play in the global “re-org” led by the BRICS+ will only become clear in time. Some recent evidence points to countries like Singapore slowly but surely turning its attention increasingly towards the BRICS+, despite its strong ties to Western allies. The quandary for some Asian nations is that upsetting the existing global power structure still carries significant risk in terms of future military alliances, economic support packaging and potential financial and economic backlash. 

With an increased focus on the opportunities that events such as the expansion of BRICS participant nations presents, investors must adjust their strategies and tactics to navigate the ever-changing landscape. The question is: will prevailing investment benchmarks, behaviours and methodologies change as well?