Last week, the 15th BRICS summit was hosted in Johannesburg, South Africa.
If you’re unaware, BRICS is simply the name of the five key member states: Brazil, Russia, India, China, South Africa. A cohort of the biggest and most influential developing economies.
The best way to think of the BRICS is as an emerging contender to the G7. The kind of contender that’s firmly looking to go toe-to-toe with the bigger players in shaping the world. And they know damn well that finance is the biggest battlefield short of going to actual war…
A fortnight ago, for example, I talked about a landmark moment between India and the United Arab Emirates. Long story short, India has secured an agreement to buy UAE oil in rupees rather than US dollars.
And that’s what most people were expecting to see more of at this BRICS summit.
It’s no secret that these emerging nations want to move away from the US’s influence.
But giving up the dollar isn’t easy. It’s going to take time to make it a reality.
What matters though, especially for markets, is that they’re trying…
Giving up on the dollar
See, while a single alternative currency is difficult to make happen for the BRICS, trading between their national currencies is far easier. It still has its drawbacks to be sure, but it is the simplest way to remove American influence in trade right now.
That’s why arrangements like this oil deal between India and the UAE are likely to become more common. I expect to see BRICS members iron out plenty more of these local currency deals.
And that could shake up the world as we know it, more than you might think.
As a Council on Foreign Relationsarticle notes:
‘If not a new world order, the BRICS expansion is certainly an attempt at an alternative world order, one with a more sympathetic ear for the developing many versus the developed few.’
Of course, it’s easy to paint this as a black and white issue when it is decidedly greyer. The US is by no means perfect, and no one wants a future where they have the ability to cut off rival nations on a whim.
After all, no matter what your thoughts on Russia’s invasion may be, the use of sanctions and market blackballing are concerning. It sets a potential precedent that could lead us down a very slippery slope.
Even if it is extremely unlikely, the fact that it’s a possibility is enough to be concerned.
On the other hand, I’m not trying to suggest the BRICS are potentially any better.
The inclusion of Iran as a BRICS member, in particular, has already raised eyebrows. A decision that was only finalised at this most recent summit.
This move alone makes it seem inevitable that conflict with the G7 is on the horizon. The kind of conflict that you only see when two global forces diametrically oppose one another.
And as I said before, you should expect this conflict to start in markets — not on a battlefield.
Opportunities and threats
Now, personally, I expect this conflict to deliver plenty of variables for investors.
More trade, even if it is localised between this cohort of developing nations, is a good thing. It incentivises a broader spectrum of markets, ones that even Aussie investors can gain exposure to via proxy.
Take iron ore exports to China as an example. Typically, this commodity has been used to fuel the Middle Kingdom’s insatiable appetite for steel. As local demand wanes, as has been happening, this steel instead becomes a key export.
Back in June, Reuters reported on this exact outcome:
‘China is set to export the most steel this year since 2016, say analysts, as the weakening yuan and competitive prices help the world’s biggest producer offload surplus metal due to weak demand at home.
‘Demand is strong from Southeast Asia, the Middle East and Africa, said traders, with high energy costs in many countries making steel production less competitive with China’s prices.’
That’s why iron ore prices, and the mining stocks reliant on them, have proved so resilient. A prime example of how you can profit from global trends even if it isn’t direct.
However, along with the opportunities come plenty of threats…
After all, the biggest loser in all of this is likely to be the US dollar. In fact, fiat currency in general could be at risk. Because while money will of course need to change hands, settling it in a variety of different currencies seems likely to lead to a lot of forex volatility. If that is the eventual goal.
For investors like you and me, this volatility could wreak havoc on your portfolio. That’s why it’s always worth putting at least some of your wealth in sturdier assets. And few options are better than gold.
In fact, our resident gold expert, Brian Chu, believes the forces at play could make gold more valuable than it has ever been in history. A confluence of factors, including this rise of BRICS nations, is making the argument for investing in gold too big to ignore.
You can check out the full story right here.
Because at the end of the day, whatever happens, you can at least rely on gold.
Prices may fluctuate, demand may rise and fall, but its reputation is rock-solid.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
