Why the long-term prospects for the BRICS network are positive


Nov. 20 2020, Updated 2:50 p.m. ET

Because of its burgeoning autonomy, long-term prospects are positive for the BRICS network as well as the other emerging economies that will inevitably join it – all of the pieces are in place for scalable growth and diminishing sensitivity to external global conditions.

If its members begin to act more like a conglomerate and less like individual nations, this could become a dominating force with about 20% of global GDP, over 40% of the world’s population, over 10% of global capital investment, and about 17% of global trade. That represents some serious economic clout.

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Market Realist – The graph above shows the size of economies as per world GDP on March 31, 2014. BRICS make up almost 20% of the world GDP and this figure is only set to go up. China (FXI) contributes almost 11.6%, India (EPI) contributes 2.7%, Russia contributes 2.7%, and Brazil (EWZ) contributes 3.4% to world GDP, as you can see above.

BRICS are likely to experience robust growth in the future. With the measures they’ve brought into effect, they could become a strong force to reckon with if they act as a union.

If the current BRICS trajectory is any indication, we may eventually see a weakening of the U.S. (SPY) dollar as a commanding leader in international dealings and, by extension, as a bedrock reserve currency. Whether that means a small decline or an all-out plunge remains to be seen, but neither is particularly good for the United States. Falling confidence in the dollar would make it more difficult for the government to borrow money and likely damper economic conditions across the world, while putting most Americans in a rough spot. And this would only accelerate the BRICS ascension.

An extreme scenario includes a shift in global power as the BRICS thrive and the rest of the world sinks with the dollar. China alone still holds over $1 trillion in U.S. debt which, if dumped, might instill a panic. Combined with the expanding economic fortitude of the BRICS nations and the growing independent infrastructure, this issue deserves some level of consideration, although any substantial changes are likely years away. One thing is clear: the BRICS are forging a bright future for themselves.

Market Realist – Read our series An investor’s must-know guide to emerging market equities to learn more about BRICS as an integral part of the emerging market (EEM) segment.


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