Pictet Study: BRICS+ as a Global Growth Driver

The Pictet Research Institute, the think tank of the Pictet Group dedicated to exploring long-term investment trends, examines in its latest study the growing influence of the emerging BRICS+ alliance on the global economy. Originally formed by Brazil, Russia, India and China, the BRIC group is evolving into a powerful global growth engine.

One key finding of this dynamic economic development, as reflected in the rise of BRICS+, is the need to rethink conventional asset classes: while high-value sectors such as technology, energy, and raw materials continue to grow and productivity in BRICS+ countries rises, traditional sectors in industrialized nations are stagnating.

BRICS+ economic growth is projected to average 3.8% over the next five years – significantly outpacing the estimated 1.74% for the G7 and EU combined. Demographics support the relative economic vitality of the BRICS+ countries, giving them an advantage over G7/EU states. In 2023, the ratio of people of retirement age to those of working age (15 to 64) stood at 15% in BRICS+ countries, compared to 33% in G7/EU countries.

The alliance has already proven effective, allowing Russia to bypass Western sanctions through resource exports to other BRICS+ members. China has mitigated the impact of tariffs by expanding intra-BRICS+ trade. Furthermore, the BRICS-founded New Development Bank has supported newer members in developing their infrastructure and economies.

China and Russia form the dominant core of the BRICS+ alliance due to their combined economic and military strength and their permanent seats on the UN Security Council. Geographically, the group controls several strategic maritime chokepoints: the Suez Canal, Strait of Malacca, Strait of Hormuz, Cape of Good Hope, Turkish Straits, and the Bab el-Mandeb (the “Gate of Tears”) – giving them leverage against the West.

Western attempts to curb BRICS+ economic influence have primarily relied on tariffs. However, these have already triggered a substitution effect, with BRICS+ countries intensifying trade among themselves.

The BRICS+ alliance is strongly committed to the UN Sustainable Development Goals, often contrasting their proactive efforts with the West’s more hesitant approach. With China and South Africa leading in rare earth production – essential for green technologies like wind turbines and electric vehicles – the BRICS+ nations are in a key position for global climate transformation. This puts the EU in a bind: it must reconcile its climate goals with maintaining geopolitical autonomy.

Although the G7/EU countries still lead in overall export volume, BRICS+ nations are gaining ground in high-value sectors. From 2017 to 2022, BRICS+ countries – driven by China – recorded stronger export growth in semiconductors, integrated circuits, chemicals, and heavy machinery than the G7/EU. While Taiwan was recently the top exporter of integrated circuits, China has now taken the lead.

This increasingly diverse investment universe has major implications for portfolios: during the era of unfettered globalization, market correlations increased and diversification became more difficult. In today’s fragmented world, growth drivers are region-specific, reducing correlations and creating new diversification opportunities. The flip side, however, is higher (geo)political risk.

What does this mean for investors?
Investors should consider increasing their exposure to thematic investments and multi-asset strategies and shift more strongly toward active management. The appeal of passive asset management – which rose to prominence during the era of globalization – may gradually diminish.

Moreover, growth appears equally likely in both public and private markets. Multi-asset portfolios could offer more promising investment opportunities than traditional asset classes like equities or bonds.