The rise of BRICS+ and what it means for emerging market stocks
Emerging market economies are set to play a key role in the major structural transformations reshaping our world, from the development of new technology and Artificial Intelligence to the clean energy transition and the protection of the planet's natural resources.
The growing influence of the BRICS+ alliance is set to bolster emerging economies' global impact, attracting inward foreign investment and fuelling economic growth. This, we believe, opens up attractive investment opportunities in listed emerging market equities.
Our belief in the emergence of this new world order has been strengthened by recent tariff measures from the US. While we acknowledge there is uncertainty and heightened market turbulence as the nature of global trade evolves, we believe this does not change the case in the longer term for emerging market development; the shifts could potentially strengthen emerging market alliances.
AI leaders
BRICS+ nations, particularly China, have made substantial investments in technology infrastructure, positioning themselves as viable competitors in semiconductor production and AI development. In addition, China's dominance in the refining of rare earth minerals, which are essential for manufacturing semiconductors and other high-tech components, gives it a strategic advantage in the global technology sector. As BRICS+ countries continue to enhance their technological capabilities, they are likely to attract more investment, fostering further innovation and economic growth. This technological advancement is not only reshaping the investment landscape but also redefining the competitive dynamics between emerging and developed markets, as BRICS+ nations increasingly export complex, high-value products.
Emerging markets are on their way to offering alternatives to the likes of Nvidia and Meta, and perhaps the most promising source of investment returns are AI-related companies based in emerging Asia. These are the 40 or so listed businesses operating out of countries such as Taiwan, South Korea, China that manufacture almost all of the world’s AI chips and many of the AI-enabled products that are essential to the growth of the technology; they are providing the picks and shovels in the current AI goldrush. The AI investment opportunities we have identified fall into three categories:
- Nvidia's graphic processing unit (GPU) supply chain, led by TSMC and SK Hynix;
- Edge AI, the tech that allows algorithms to run directly on smart phones or computers without the need for an Internet connection, with Samsung, Xiaomi and Lenovo leading edge device makers, and Mediatek in global leadership in CPU chips for edge devices;
- AI application, with IT services companies in India and Vietnam dominant in enterprise adoption of AI.
As a consequence of new US tariffs, some Asian-listed companies may join the likes of Taiwanese cloud-infrastructure provider Wiwynn in setting up US-based production facilities – thus maintaining a link between the US and the BRICS+ alliance. Yet irrespective of where they are located, these companies will continue to emerge as technology stars due to their leading-edge R&D capabilities.
Complex and growing
Exports of semiconductors (left) and electronic integrated circuits (right): product complexity, growth and market share.
Source: The Growth Lab at Harvard University, Pictet Research Institute. Data as at 2022.
Critical to the energy transition
Energy supply is another critical driver of future growth for BRICS+ economies. The coalition is rich in resources, including fossil fuels, minerals critical for green energy, and nuclear power, which positions it as a formidable player in the global energy market.
As the world transitions towards cleaner energy solutions, BRICS+ countries are strategically positioned to capitalise on this shift, offering investors opportunities in both traditional and renewable energy sectors. This energy diversification not only enhances the coalition's economic resilience but also strengthens its geopolitical influence, as control over energy resources becomes increasingly crucial in a polarised world.
China is the most high-profile example of EM’s decarbonisation efforts. Its carbon emissions are likely to reach a peak as early as this year, beating its 2030 target. China has already become the world’s top financier of green technologies from solar panels and wind turbines to electric vehicle (EV) batteries, shifting its industrial structure away from emission-heavy manufacturing in the process.
The efforts of China, along with those of its neighbours, have helped make emerging Asia the world’s second biggest spenders on green tech relative to fossil fuel (after Europe), clearly demonstrating their commitment to the transition.
Other emerging market powerhouses are also embracing the sun, with significant solar capacity investments planned or underway in, for example, India and the UAE.
Resourcing the BRICS+ future
Commodities remain a cornerstone of BRICS+ growth strategy, with abundant natural resources playing a vital role in the coalition’s economic expansion.
The countries of the alliance hold a significant share of global production in various commodities, including industrial metals and rare earths, which are essential for manufacturing and technology. Taking three examples:
- Two thirds of global copper reserves are situated in BRICS or partner countries – copper is an integral component of green energy and EV infrastructure.
- China, Brazil and India are the top three countries endowed with more than 1 million tonnes of rare earth reserves each, and five of the top eight resource holders are BRICS or partner countries.
- 60% of uranium reserves are in BRICS or partner countries.
The BRICS countries' dominance in commodity production challenges the traditional supremacy of G7/EU nations, potentially shifting global trade dynamics and geopolitical power. As demand for commodities continues to rise, driven by technological advancements and the green transition, BRICS nations are well-positioned to meet this demand, offering investors lucrative opportunities in resource extraction and processing industries. The coalition's ability to leverage its commodity strengths not only supports its economic growth but also enhances its strategic influence in global markets, making it an attractive investment destination for those seeking exposure to emerging market stocks.
In conclusion, the rise of BRICS+ is set to redefine investment strategies in emerging market listed stocks, with technology, energy supply, and commodities serving as key growth drivers. As these countries harness their collective strengths, investors can anticipate a more thematic approach to portfolio construction, focusing on the core determinants of future growth. This shift presents both challenges and opportunities; investors will need to navigate a complex geopolitical and economic landscape but doing so could yield great rewards from the evolving dynamics of BRICS+ economies.
Marketing Communication
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