Breaking News
Investing Pro 0
Last Call for Cyber Monday! Save Now on Claim 60% OFF

The Growing Role of Brics on the World Stage

By Frank HolmesMarket OverviewAug 28, 2023 21:59
ng.investing.com/analysis/the-growing-role-of-brics-on-the-world-stage-180576
The Growing Role of Brics on the World Stage
By Frank Holmes   |  Aug 28, 2023 21:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
XAU/USD
+1.67%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DX
-0.25%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
-3.12%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
+0.57%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CNY
+0.05%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NVDA
+0.05%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The BRICS nations are coming of age.

At its annual summit in Johannesburg last week, the bloc of five emerging countries—Brazil, Russia, India, China, and South Africa—announced plans to expand for the first time since 2010. On January 1, 2024, the BRICS will welcome six new members: Saudi Arabia, Argentina, Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE).

The expansion will further establish the group as a counterbalance to the G7's global influence, catapulting BRICS' share of global GDP to 36% as well as covering nearly half of the world’s population. With dozens more nations expressing interest in joining the bloc, the BRICS are clearly positioning themselves for a multipolar world, one that is not dominated by the U.S. and other members of the West.

I expect the BRICS’ rise to create both opportunities and challenges for investors. Understanding the geopolitical, economic, and regulatory landscape will be critical for navigating this environment successfully.

The Dollar’s Dominance Challenged

Perhaps most notably, Russian President Vladimir Putin—speaking remotely due to an International Criminal Court (ICC) arrest warrant for alleged war crimes—discussed the BRICS’ push to conduct trade in local currencies instead of the US Dollar, a move that would significantly reconfigure global trade dynamics.

Currency Percent of Total Global Foreign Reserves
Currency Percent of Total Global Foreign Reserves

Since the Bretton Woods Conference in 1944, the dollar's status as the world's primary reserve currency has offered the US tremendous benefits such as cheaper financing and unparalleled leverage in the form of financial sanctions. But now, with BRICS nations seeking an alternative to the greenback (and growing their ranks from five members to 11), the currency landscape may see a new major tectonic shift, contributing to greater volatility in the Treasury market, exchange rates, inflation, and more.

At the heart of this strategy lies the New Development Bank (NDB).

Established in 2015 as an alternative to Western lenders such as the World Bank and International Monetary Fund (IMF), the NDB has been making waves. Its recent decision to release an Indian rupee bond and to consider local currency bonds in other countries reflects its intent to diversify away from the US dollar.

Former Brazilian leader and NDB's current president, Dilma Rousseff, shared the bank's ambitious plans to lend between $8 billion and $10 billion this year, with approximately 30% of the lending in local currencies. The U.S.-based financial system is “going to be substituted by a more multipolar system,” Rousseff told the Financial Times.

My own opinion is that the US Dollar will not be completely dethroned as a reserve currency, though we may end up seeing it share the stage more prominently with the euro, Chinese yuan, Bitcoin, or some other currency. In their current roster, the BRICS represent over 32% of the world’s GDP, which is slightly more than the G7’s 30%; however, GDP per capita, an indicator of economic prosperity, remains a gap that the BRICS must bridge.

BRICS Nations Trail G7 in Per-Capita GDP
BRICS Nations Trail G7 in Per-Capita GDP

As the BRICS nations evolve and expand their influence, a more diversified global governance is inevitable. The current trajectory promises a world where traditional powerhouses, including the U.S. and the European Union (EU), must adapt to new realities.

As an investor and an observer, staying nimble will be paramount.

The Impact of Rising US Treasury Yields

Also shaping the market right now are rising U.S. Treasury yields. As these yields surge due to stronger-than-expected economic growth and the Federal Reserve's tightening policies, risk-on assets, from stocks to Bitcoin, are feeling the heat. Over the past 30 days, the 10-year Treasury yield has risen some 9.4% while the S&P 500 and Bitcoin have lost 3.5% and 10.8%, respectively. Bitcoin, in fact, has fallen into the most extreme oversold territory since last summer’s crypto winter, triggered by the failures of crypto firms Celsius, Three Arrows Capital, and Voyager.

Oversold Bitcoin
Oversold Bitcoin

With Jerome Powell asserting at Friday’s Jackson Hole summit that it may be appropriate to hike rates further to combat inflation, investor focus could be shifting toward sectors less reliant on borrowing, like utilities and consumer staples. Still, many remain optimistic about the resilience of equities, especially in the context of a robust US economy.

The standout exception to struggling equities, of course, has been artificial intelligence (AI) stocks in general and NVIDIA (NASDAQ:NVDA) specifically. For the 12-month, year-to-date, three-month, and five-day periods, the Santa Clara-based graphics processing unit (GPU) maker remains the top-performing S&P 500 stock by far as investors scramble to get exposure to companies involved in AI.

Gold's Enduring Luster

In the midst of all this, Gold continues its role as a stable store of value. Despite challenges like rising yields, my sentiment around gold remains bullish. Its current trading levels, though down from their peak, still indicate strong investor interest.

I’m also bullish on gold mining stocks, though I must urge investors to focus on high-quality, well-managed companies with strong balance sheets.

One of our favorite metrics when picking gold mining stocks is free cash flow (FCF) yield, which tells you how much free cash flow a company has relative to its market capitalization. Because explorers and producers have high operational costs and capital-intensive requirements, it’s important that they maintain healthy balance sheets.

Last month, I shared with you the top 10 gold mining stocks ranked by FCF yield, using data from the March quarter. In the chart below, I’ve updated the list for the quarter ended June 30. 

High Cash Flow Yield Gold Mining Stocks
High Cash Flow Yield Gold Mining Stocks

Leading the pack with an FCF yield of 15.3% is Australia-based Perseus Mining, which operates three gold mines in Africa. The company reported a strong June quarter in terms of cash generation, with a net increase of $51 million in its overall cash position, taking into account cash, bullion, and interest-bearing debt. At quarter-end, Perseus held $484 million in cash and physical gold, against a market cap of approximately $1.5 billion.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. Purchasing power parity is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries’ currencies.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of (06/30/2023): Perseus Mining Ltd., Northam Platinum Holdings Ltd., Dundee Precious Metals Inc, Lundin Gold Inc, Emerald Resources NL, West African Resources Ltd, Impala Platinum Holdings Ltd , African Rainbow Minerals Ltd.

Disclaimer: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate for every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Growing Role of Brics on the World Stage
 

Related Articles

The Growing Role of Brics on the World Stage

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email