A guide to Investing in emerging markets – CNN Underscored – CROCODOM.com

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By
Evan Cooper
CNN Underscored Money
Published 1:00 AM EDT, Thu April 18, 2024
CHUNYIP WONG/iStock
Many investors intrigued by potential investing opportunities in the developing world often cast their eyes on BRICS. The term is the acronym for a group of large emerging-market nations: Brazil, Russia, India, China and South Africa.
Others have recently joined the group, constituting an increasing share of the world economy.
The original acronym (minus the “S”) was coined in 2001 by Goldman Sachs economist Jim O’Neill to describe an analytical grouping. He recognized that, with their fast-growing economies, the first four countries, Brazil, Russia, India and China, could become an economic bloc rivaling developed markets. The four nations liked the idea of being thought of as a powerful bloc and began to meet informally in 2006.
The group held its first official meeting in 2009 and added South Africa in 2010. Today, the nations work together to exert the geopolitical power that is reflective of their growing economic clout. In January 2024, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) joined the group; Argentina was invited but didn’t accept.
In some ways, given the differences in their political and economic strengths and weaknesses, BRICS are an odd mix. The four original members boast rather large economies, while those of South Africa and the new members, for the most part, are considerably smaller. But the economies of even the larger BRICS are not merely smaller versions of developed-market countries.
China has the largest economy of the BRICS, ranking second in the world after the United States, with a GDP of almost $18 trillion in 2022, accounting for almost 18% of global GDP and 30% of global manufacturing. In 2023, GDP grew by 5.2%, ahead of 2022’s 3% growth rate.
India’s GDP, at $3.4 trillion in 2022, makes it the world’s fifth-largest economy. It is also one of the fastest-growing BRICS, expanding by 7.2% in 2022. Brazil has the 11th-largest economy in the world, according to data from the World Bank. Its GDP was $1.9 trillion, and it grew at 2.9% in 2022.
Russia’s economy is the eighth-largest in the world at $2.2 trillion, even after shrinking by 2.1% in 2022, largely as a result of sanctions imposed by the West after it invaded Ukraine.
Ranking 38th in the world, South Africa’s economy is the smallest of the named BRICS, at $405 billion in 2022, when it grew 1.9%. Ethiopia is the smallest overall, with a GDP of just $126.8 billion.
Two of the newest BRICS — Saudi Arabia and the United Arab Emirates — have much bigger economies than South Africa, largely because they are major oil exporters. Saudi Arabia ranks 17th among global economies at $1.1 trillion, and the UAE ranks 28th at $507 billion.

For US investors, the easiest and least expensive way to invest in BRICS is through an exchange-traded fund (ETF). Like all ETFs, exchange-traded funds that specialize in BRICS invest in a basket of stocks to track a stock index. Index providers create and maintain stock indexes, the components of which are selected because they are considered to be representative of the sector, geography or certain characteristics that investors want to access.
While the shares of many large BRICS companies are traded in US markets, an ETF is probably the optimal way to invest in BRICS for most US investors. ETFs offer greater diversification than buying individual BRICS stocks in the US and are far easier for individual investors to buy and sell than shares trading on foreign exchanges.
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There are many BRICS ETFs to choose from. Some are broad and include all BRICS, although many large index providers like FTSE Russell, MSCI and S&P Dow Jones removed Russia from their indexes in March 2022 after the West imposed sanctions on the country. As a result, Russia is now excluded from many broad BRIC indexes, and Russia-only ETFs no longer trade. One major ETF, the iShares MSCI Russia ETF, is in the process of being liquidated.
Several multi-BRICS ETFs also exclude China, reflecting investor concerns over the Chinese government’s human rights record as well as its inconsistency in the area of corporate independence.
“Because so many emerging-market ETFs are now available, many investment professionals have ‘broken apart’ the BRICS and select only those economies they consider to be very investible, such as Brazil and India, while omitting those they believe to be too risky,” said Richard Ward, chief investment officer of Curated Wealth Partners, a registered investment advisory firm in El Segundo, California.
In addition to the risks that come with investing in stocks, it is important to remember that investing in BRICS ETFs also entails currency risk, as the prices of the securities that are part of the fund are denominated in the currencies of their respective nations. Relative to the US dollar, the BRICS currencies tend to be more volatile than the relationship of the dollar to currencies of other developed nations, such as the euro, British pound and Japanese yen.
The reason for the currency volatility of BRICS varies country by country but often results from the nature of their economies. Often reliant on commodity exports, BRICS’s fortunes typically fluctuate with the state of the global economy to a greater degree than most developed economies.
Additionally, many BRICS face political challenges that can affect the interest rates that foreign lenders charge when extending credit in the form of hard-currency loans (loans that must be paid in stable, “hard currencies” like the euro or US dollar) to governments and companies. If BRICS pay higher interest rates to borrow money and their economic prospects worsen, the value of their currencies tends to decline as they struggle to pay their debts.
Owning a diversified portfolio of BRICS ETFs, or an all-BRICS ETF, can help mitigate country-specific risks.
Investing in a BRICS ETF is as easy as investing in any stock or ETF listed on an exchange. A BRICS ETF can be bought or sold at any time during the trading day through a brokerage account.
As with any investment in equities, there is market risk in holding a stake in a BRICS ETF, meaning that its value can decline. Because the underlying stocks are not US-based companies, there is also the risk of changes in relative currency value, which could affect the price of stocks that constitute the index on which the ETF is based. There is also political risk, an example of which is the sanctions imposed on Russia, leading to the removal of that nation from major indexes. Because Russian stocks constituted such a small part of index totals, however, investment managers said that the action would have little effect on the overall performance of most investors’ portfolios.
Investors can track the performance of BRICS ETFs on easily accessible and free financial news and information websites. If you own shares of a BRICS ETF, you can also track performance directly from your brokerage account.
Short-term investing all too often can be a euphemism for speculation. Since many BRICS economies are not as diverse as those of developed nations, they often are more affected by changes in prices of the natural resources and commodities they either depend on or export. These changes can affect the value of a country’s currency, which has many ramifications, including affecting the value of individual securities. As a result, BRICS ETFs can be volatile, which can lead to losses in the short term. Over the long term, however, volatility may be just a bumpy ride along the way to greater value.
Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.
This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.
Note: While the offers mentioned above are accurate at the time of publication, they’re subject to change at any time and may have changed or may no longer be available.
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