How to Invest in BRICS

As global markets evolve, the BRICS countries — Brazil, Russia, India, China and South Africa — emerge as economic opportunity powerhouses. Offering a blend of rich natural resources, expanding middle classes and technological innovation, these nations are on the radar of savvy investors. But investing in BRICS isn't as simple as hitting buy on your trading app.

Trading in BRICS countries involves navigating unique market conditions, risks and regulatory landscapes, as well as understanding the different instruments and tools available to you as an investor. Here's all you need to know about the BRICS countries, the different ways you can invest in them and some potential risks to be aware of. 

What is BRICS?

BRICS is an acronym that stands for Brazil, Russia, India, China and South Africa — five major emerging economies that have garnered significant attention for their prominent roles in the global market and political sphere. 

Unlike traditional economic unions like the European Union or military alliances like NATO, BRICS is not a formal trading bloc with a single currency or a unified political system. Instead, it is a loose, informal alliance aimed at fostering mutual benefit through economic cooperation, trade partnerships and diplomatic dialogues. 

The five countries meet annually at the BRICS Summit to discuss various issues from economic policies to regional security, and they have also formed sub-committees and working groups to collaborate on specific sectors such as finance, technology and healthcare.

In 2024, the group expanded to include four member countries: Iran, Egypt, Ethiopia, and the United Arab Emirates.

History of BRICS

BRICS is an acronym that originally began as BRIC in 2001, coined by Jim O'Neill, a Goldman Sachs economist, to represent Brazil, China, India, and Russia. In 2010, South Africa joined the group, expanding it to BRICS.

The idea of BRICS was initially set into motion by Russian President Vladimir Putin, who called the first BRICS Ministerial Meeting on Sept. 20, 2006. This meeting, held on the sidelines of a UN General Assembly Session, involved the foreign ministers of Russia, Brazil and China, as well as the Indian Defense Minister. 

Building on this initial meeting, a second gathering took place on May 16, 2008, in Yekaterinburg, Russia. Yet another milestone was reached later that year when the leaders of these emerging economies met at the G8 Summit in Toyako, Japan.

The formal inception of BRIC (before the inclusion of South Africa) came in June 2009 with the first BRIC Summit and the issuance of a joint statement that laid out the coalition's objectives. Since then, the coalition has met annually during their summits to work on action plans. 

BRICS GDP and Growth Rates

The BRICS nations include Brazil, Russia, India, China, and South Africa. They make up a significant economic bloc that is gaining global attention. This report looks at the GDP and growth rates of these five countries. Each has different economic policies and resources that contribute to their growth. By analyzing their GDP figures, we can understand the economic trends within this alliance. This understanding will help stakeholders adapt to the changing economic landscape shaped by these influential nations.

Brazil

Brazil's GDP was $1.9 trillion, and its growth rate was 2.9%. Due to its strong agricultural and mineral resources, Brazil offers investment opportunities in agribusiness, renewable energy, and infrastructure projects.

Russia

Despite recent economic downturns caused by sanctions and geopolitical tensions, Russia remains a key player in the energy sector, especially oil and gas. It has a GDP of $2.2 trillion, though its growth rate in 2022 was negative at -2.1%.

India

India has the highest growth rate, 7.2%, and a GDP of $3.4 trillion. Its booming tech industry and strong consumer market present vast opportunities in technology, pharmaceuticals, and renewable energy.

China

China, the largest economy in the group, has a GDP of $18 trillion and a growth rate of 3.0%. It offers extensive investment prospects in manufacturing, technology, and consumer goods sectors, supported by its growing middle class and rapid urbanization.

South Africa

With a GDP of $405.3 billion and a growth rate of 1.9%, South Africa has a diverse economy, especially in mining, finance, and manufacturing. It offers attractive investment opportunities as a strategic gateway to broader African markets.

BRICS New Members

BRICS started with Brazil, Russia, India, China, and South Africa. It has recently added new members. This change marks a shift on the global economic landscape. The expansion shows a desire for more diverse alliances as the world faces geopolitical and economic challenges. The goal is to improve cooperation among emerging economies, promote sustainable development, and balance global power. With new members, BRICS can increase its influence internationally and tackle global issues together. The next sections will discuss the new members, their reasons for joining, and what this means for BRICS and the world.

Saudi Arabia

Saudi Arabia, a new member, has a GDP of $1.1 trillion and an impressive growth rate of 8.7%. Under Vision 2030, it is diversifying its economy, creating exciting opportunities in tourism, entertainment, and non-oil industries.

United Arab Emirates

With a GDP of $507.1 billion and a growth rate of 7.9%, the United Arab Emirates serves as a major business hub, with significant investments in real estate, tourism, financial services, technology, and renewable energy.

Egypt

Egypt, undergoing economic reforms and infrastructural investments, has a GDP of $476.8 billion and a growth rate of 6.6%. It offers promising prospects in construction, natural gas, and tourism.

Iran

Despite sanctions, Iran has shown economic resilience with a GDP of $413.5 billion and a growth rate of 3.8%. It offers opportunities in the energy, agriculture, and automotive sectors. Potential investors in Iran should closely monitor geopolitical developments.

Why Should You Invest in BRICS Currency?

The global economy is changing. The BRICS countries—Brazil, Russia, India, China, and South Africa—are becoming important players. These nations have strong economic power and resources. Investing in BRICS currency offers unique opportunities. It provides diversification, access to growing markets, and potential stability against traditional currencies. The BRICS alliance supports trade and cooperation among its members. This could make their currency more stable and appealing to investors. Understanding why to invest in BRICS currency is important for anyone looking to improve their investment portfolios.

Diversification

Investors who hold many Western currencies, like the U.S. dollar, euro, or British pound, may benefit from diversifying into BRICS currencies. Relying too much on developed market currencies can increase risk during economic downturns or policy changes. By adding currencies from emerging markets, such as the Brazilian real or Chinese yuan, investors can lessen their risk across various economies. This strategy not only protects against declines in Western markets but also provides access to faster-growing regions. Emerging markets often behave differently than Western economies, helping to reduce overall volatility in a global portfolio.

Potential Currency Appreciation

Investing in BRICS currencies can lead to potential growth. Many BRICS nations are growing economically. These trends can boost currency values over time. For instance, China’s growth has led to the yuan appreciating against other currencies. As these countries develop, their currencies might gain value compared to others. Investors holding BRICS currencies may benefit when converting back to their home currency. Additionally, these economies are focusing on high-value industries and better governance. These changes could support long-term currency strength and improve returns.

Trade Opportunities and Increased Global Relevance

The economic power of BRICS nations is growing quickly. As their economies integrate with the global system, their currencies may play a bigger role. Countries like China and India are becoming major players. Brazil's agriculture and natural resources are vital for global markets. This could lead to a higher demand for BRICS currencies to settle international trade. Trade patterns are shifting away from Western dominance. For example, China is promoting the yuan for trade with nations across Asia and Africa. This shift might reduce reliance on the U.S. dollar. As BRICS countries strengthen their market positions, their currencies could increase. This trend may present investment opportunities for profit.

Considerations Before Investing in BRICS Currency

Investors are increasingly interested
in alternative currencies and markets, especially those linked to the BRICS nations: Brazil, Russia, India, China, and South Africa. The BRICS bloc focuses on improving economic cooperation and reducing reliance on Western currencies. This presents a good opportunity for diversification. However, investors should consider several important factors before investing. These include geopolitical stability, economic performance, currency volatility, and regulatory environments. It is also essential to understand how BRICS cooperation affects global trade and finance. Knowing these aspects helps investors make informed choices that match their risk tolerance and investment goals.

Inflation Risks

Inflation is a major issue in some BRICS countries, especially Brazil and Russia. These countries have had high inflation rates in the past. Inflation can reduce the real value of investments by cutting purchasing power. If you invest in a currency with high inflation, your nominal returns might not keep up with rising prices. Brazil often struggles with inflation due to fluctuating commodity prices and government policies. Russia faces inflation pressure from economic sanctions and changes in global energy markets. High inflation makes it hard for investors to maintain the value of their assets. Currency values may decline quicker than returns can be earned. Additionally, high inflation usually results in higher interest rates. This can create instability in currency markets and increase volatility, making investment strategies more complicated.

Geopolitical Risks

Geopolitical tensions affect the stability and value of BRICS currencies. Events like sanctions and trade wars can sharply reduce a currency's value. For example, Russia has suffered from international sanctions after the annexation of Crimea and the conflict with Ukraine. These sanctions led to a significant drop of the Russian ruble, making it a less attractive investment. Similarly, China faces trade disputes, especially with the United States. These trade wars and tariffs create economic tensions and volatility for the Chinese yuan. Predicting these geopolitical risks is challenging. They can quickly reduce the value of investments and expose investors to sudden losses. Additionally, BRICS countries may experience political instability. Changes of leadership, corruption scandals, or civil unrest can also devalue currencies and increase market risks.

Currency Controls

Investing directly into BRICS currencies can be challenging due to strict capital controls. These are government-imposed restrictions that limit how money moves into and out of a country. China is a key example. The Chinese government maintains strict controls on the yuan. This limits foreign investors' ability to exchange yuan freely for different currencies. Although China has a large economy and strong growth potential, these restrictions complicate investments. They can also distort the yuan's true market valuation. Other BRICS countries, such as India and South Africa, have had capital controls during economic distress to stabilize their currencies. While these measures can protect local economies, they add risk for foreign investors who may struggle to liquidate or transfer their investments when necessary.

10 Top Ways to Invest in BRICS

Buying foreign currency isn't the only way to invest in BRICS. Investors have access to a variety of other traditional and non-traditional investment vehicles. Here are the top 10 ways to invest in BRICS, offering a variety of approaches to suit different risk appetites and investment goals.

ETFs

Investing in BRICS countries via exchange-traded funds (ETFs) is a straightforward process. These funds trade on stock exchanges like individual stocks and often track a specific index, which can be focused on one BRICS country or the entire group. By buying shares of an ETF, investors get exposure to multiple stocks within that index, providing a level of diversification and mitigating risk. 

However, it's essential to consider factors like expense ratios, which can erode returns, and liquidity to ensure easy buying and selling. There's also a need to be aware of currency risks and the volatility often associated with emerging markets.

Popular examples of ETFs for investing in BRICS include the iShares MSCI Brazil ETF (NYSEARCA: EWZ), the iShares MSCI India ETF (NYSEARCA: INDA), the iShares MSCI China ETF (NYSEARCA: MCHI) and the iShares MSCI South Africa ETF (NYSEARCA: EZA). There's also the iShares MSCI BIC ETF (NYSEARCA: BKF) which holds Brazilian, Indian and Chinese stocks. 

Mutual Funds

Investing in BRICS through mutual funds offers another way to gain exposure to these emerging markets. Managed by professional portfolio managers, these funds pool money from multiple investors to buy a diversified set of assets like stocks or bonds from BRICS countries. Investors can buy shares of the mutual fund, and in return, they own a portion of its portfolio.

Unlike ETFs, mutual funds are not traded on an exchange and their prices are determined once a day after market close, with investors buying at that price. In addition, they often come with higher fees compared to ETFs and may require a minimum investment amount, which varies from fund to fund. 

Like all investments in emerging markets, BRICS-focused mutual funds come with risks like currency fluctuations, economic volatility and political uncertainty.

Emerging Markets Funds

Emerging markets funds can be ETFs or mutual funds that aim to offer investors exposure to a broad range of emerging markets, not just the BRICS countries. These funds often track external benchmark indices, like the MSCI Emerging Markets Index or the FTSE Emerging Index, to guide their investment strategies. 

While they do include assets from BRICS nations, their scope is much wider and may encompass other emerging or frontier markets like Vietnam, Mexico, Indonesia or Turkey, potentially offering greater diversification. However, the broad focus means your investment in BRICS will be diluted by assets from other countries.

Stock Market Investments

Investing directly in the stock markets of BRICS nations involves buying shares of individual companies. This strategy allows investors to target specific sectors or businesses but also comes with heightened company-specific risks. Additionally, not all brokerage platforms offer the ability to trade foreign stocks, and you may need to convert your currency to make a purchase, adding to the cost.

Currency Markets

Investing in BRICS currencies can be done through forex trading or using currency futures. While this method provides a way to benefit from currency appreciation, it's also fraught with risk. Forex markets are highly volatile and require a deep understanding of macroeconomic factors. Currency futures are complex financial instruments that might not be suitable for all investors.

Real Estate Investment Trusts (REITs)

REITs in BRICS countries provide an indirect way to invest in real estate markets. These trusts invest in property and allow individual investors to buy shares in these properties. However, this investment type comes with its set of risks, such as instability in China's real estate market or unfavorable taxation laws in some BRICS nations.

ADRs and GDRs

American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) represent shares in foreign companies and are traded on U.S. and international exchanges, respectively. These instruments allow investors to avoid the complexities of currency conversion but still come with the inherent risks of investing in individual companies.

Private Equity and Venture Capital

These investments are usually only open to high-net-worth or institutional investors and involve directly investing in private companies or startups in BRICS nations. This approach has the potential for high returns but also carries a high level of risk and illiquidity and requires a long investment horizon.

Bonds and Fixed-Income Securities

Investing in bonds from BRICS involves purchasing debt securities either from their governments or companies. While generally considered less volatile than stocks, these investments can carry credit risks and may be illiquid. Pricing them can also be a challenge because of data limitations and market inefficiencies.

Infrastructure Projects

Investing in infrastructure involves financing large-scale projects like roads, bridges and airports, usually through a public-private partnership. This investment has a long-time horizon and carries risks like project delays and cost overruns. However, it can provide stable, long-term returns. Like private equity and venture capital, it may not be available to retail investors. 

A New World Order to Invest In?

BRICS nations represent a burgeoning frontier for global investment, often seen as an alternative or supplement to more established markets. As the global geopolitical landscape changes, these countries could be poised for dominance.  

The investment landscape in these countries is diverse, offering a plethora of options from direct stock purchases and currency trading to more complex and indirect vehicles like ETFs, mutual funds and infrastructure projects. 

Each method comes with its unique set of rewards and challenges, from the high-return, high-risk world of private equity and venture capital to the more stable but still volatile arena of bonds and REITs. 

Given the array of investment opportunities and the risks of each, due diligence and a well-rounded understanding of the individual countries and their broader economic context are crucial for anyone looking to invest in BRICS. 

Frequently Asked Questions