BRICS+ and the great power competition

The upshot of these shifting economic realities, highlighted by the growth of BRICS+, is the need to rethink conventional asset classes. While high-value sectors like technology, energy supply, commodities/resources and productivity in BRICS+ countries grow, other sectors in developed markets stagnate.

The BRICS+ economies should grow 3.8% on average over the next five years, way ahead of the 1.74% estimated for the G7 and EU combined. BRICS+ demographics are a source of relative economic vitality giving the bloc an advantage over the G7/EU.  The ratio of the population over the age 65 to the working-age population between 15-64 (the elderly dependency ratio) was 15% in BRICS+ countries in 2023, but 33% in the G7/EU.

The coalition has already proven effective in its infancy, allowing Russia to protect its economy from Western sanctions by exporting natural resources to BRICS+ peers and bypassing Western sanctions, and China to mitigate the effects of tariffs by increasing trade within the alliance. In addition, the New Development Bank – the development bank established by the BRICS states – is supporting newer members in developing and expanding their infrastructure and economies.

China and Russia form the dominant core of the BRICS+ alliance, thanks to their combined economic and military strength and as permanent members of the UN Security Council. The geographic reach of BRICS+ gives them access to trading routes and leverage over the West. BRICS+ effectively control maritime chokepoints: the Suez Canal, the Strait of Malacca, the Strait of Hormuz, the Cape of Good Hope, the Turkish Straights and Bab-el-Mandeb (also called the ‘Gate of Grief’).

Western efforts to slow the economic clout of BRICS+ have centred on tariffs, but these have already provoked a substitution effect, such that BRICS+ countries have greatly increased trade among themselves.

BRICS are vocal champions of the UN’s Sustainable Development Goals and point to the tepid support given by Western governments in meeting these international targets. The strength of BRICS+ in the production of rare earths – led by China and South Africa – puts BRICS+ in a pivotal position in the global green transition as these are crucial components for clean technologies including wind turbines and electric vehicles. This leaves the EU, in particular, in an awkward position as it tries to meet climate targets without jeopardising its geopolitical autonomy.

While G7/EU countries export more than BRICS+, BRICS+ has a foothold in high-value markets. The export growth of categories like semiconductors, integrated circuits, chemicals and heavy machinery, with China the driving force, was much stronger for BRICS+ countries than the G7/EU between 2017 and 2022.

Until recently Taiwan was export leader in integrated circuits. China is now in the lead.

This more diverse investment universe has implications for portfolios. During the era of unfettered globalisation, correlations between markets rose and diversification was harder to achieve. In today’s fragmented world, the drivers of growth manifest themselves differently in different regions - correlations should be lower and diversification opportunities greater – at the expense of higher (geo)political risk.

What does this mean for investors? 

Investors should incorporate more thematic and more multi-asset strategies into their portfolios, as well as more active management. Over time the allure of passive asset management, which has owed its rise and current dominance to the time of unfettered free trade and globalisation, will erode.

What’s more, growth is as likely to be found in public and in private markets. As a result, investment opportunities may be better captured through multi-asset portfolios invested across public and private markets, rather than traditional asset classes such as equities or fixed income.