Following the BRICS summit we explore the Global South's influence and implications for EM.
At the time of writing, the latest BRICS summit is taking place in Kazan, Russia. Vladimir Putin is hosting Xi Jinping, Cyril Ramaphosa, Narendra Modi and 20 other heads of state from countries as diverse as Iran, Egypt, the UAE, Palestine, Bolivia, Mongolia, Turkey and the Congo. President Lula would have been there too, had he not suffered a head injury just before flying.
‘So what’ you might ask? The BRICS have been around for a long time, and it has done little to impede the ongoing dominance of the US economic juggernaut. More than this, are these not very peculiar bedfellows with little chance of agreeing anything? India has beef with China on any number of fronts and Brazil is understandably wary of alienating its northern neighbours by cosying up too closely to Russia.
What interests us, however, is less the immediacy of what might or might not be agreed at this summit, but more whether this is just another piece of evidence in a gradually accelerating direction of travel.
Key agenda items for this gathering include:
- Promoting trade in local currencies and reducing dollar dependency
- Strengthening the BRICS Cross-Border Payments Initiative
- Discussing the role of the New Development Bank
In the face of growing protectionism is it any wonder that large emerging countries are exploring how best to trade and work together in a world where reliance on the US dollar, the IMF, the World Bank and western financial institutions writ large seems increasingly precarious? What might this mean for EM investors?
In short, history would suggest it presents important opportunities. If you look back at previous bouts of protectionism, the key takeaway is that rather than stifle international trade, it merely pushes it elsewhere. Think of it like squeezing a balloon.
Evidence would suggest this is already happening. China now trades more with other ASEAN countries than it does with the US. EM countries trade more with one another than the whole of the G7. And as the west steps away, the void is being rapidly filled. BYD, the world’s largest EV maker, bought Ford’s factory in Brazil; CATL, the world’s largest battery maker, won the bid for a huge lithium project in Bolivia. And we know that between the Belt and Road Initiative, the New Development Bank and the Asian Infrastructure Investment Bank that the BRICS, and China’s influence in particular, over resource rich countries throughout the global south, is reaching levels unmatched since western colonialism.
There are any number of questions that follow from these observations, but our job is simply to see whether these shifts present opportunities from which our clients can benefit. Does an EM universe that is gradually weaning itself off a reliance on the greenback become more or less resilient? Does a growing stranglehold over the key ingredients for the energy transition make for more attractive, long-term secular growth investments?
These are the questions our investment team are asking and more often than not, they increase our enthusiasm for the EM universe. It pays to look beyond the understandable pre-occupation with the US/China tussle and the continuing barbarism of Putin’s war to the second derivative consequences of these global shifts.
The global south is reorganising, growing and increasingly forging its own path. As this gathers pace, investing in those EM companies capitalising on these trends should provide our clients with a welcome boost to their returns.
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This communication was produced and approved in October 2024 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
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