R&D #2: BRICScoin? 🟡

June 30th, 2023

Olá, privet, namaste, nǐ hǎo and sawubona to all international investment enthusiasts, and welcome to edition #2 of R&D.

Following a big summer for the BRICS group, we’re digging into what the future looks like for the G7’s emerging market rival, its plans for a common currency and which nations could add their names to an acronym that surely only has a couple of good letters left before it becomes entirely unpronounceable.

But first, to Latin America.

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Are LATAM currencies undervalued?

Emerging markets typically perform well when the dollar is weaker (i.e. right now) – opening the door for other economies to surge ahead as traditional markets slow. This should be to the benefit of a number of countries in Latin America where, after a long period of sluggish growth, there’s been some pretty major rebounds. US asset prices have taken a bruising from the country’s battle with inflation and the Fed’s rate-hike addiction, meaning many LATAM currencies have outperformed on monetary policy tightening cycles.

However, markets don’t seem to have fully clocked this, with a number of LATAM currencies seemingly significantly undervalued

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Get a full regional breakdown in ‘True value: Are LATAM currencies undervalued?’.

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Charted Territory: India predicted to outshine China

Source: OECD Economic Outlook, June 2023.

This month’s Economic Outlook from the OECD contained some good news for India (and less good news for China). Deaglo’s Matheus Zani explains why.

The latest figures from the OECD indicate that India is expected to outperform China in terms of GDP in 2023 and 2024. This is influenced by several factors. Firstly, India is projected to surpass China as the world's most populous country this year, with an estimated population of 1.429 billion, and it is expected to continue growing to 1.5 billion by 2100. In contrast, China's population is projected to be 800 million by 2100.

In light of India's growing population, foreign institutional investors are increasingly interested in the country as an investment destination, particularly due to its infrastructure and renewable energy needs.

Additionally, companies are actively seeking to diversify their supply chains and reduce their reliance on China as their primary manufacturing base. As a result, India is seen as one of the beneficiaries of this shift in supply chain dynamics.

Furthermore, investors are taking note of various factors impacting China's investment landscape. These include escalating geopolitical tensions between the United States and Taiwan, subdued demand despite a rebound in services, and a challenging market environment even with comparatively low valuations.

More info here.

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Around the World in Headlines

There aren’t really quiet months in geopolitics, but the last few years have really cranked it to 11 before ripping the dial clean off. June 2023 has been no different. Elections in Turkey and Greece saw football-loving strongman Erdogan win a third Presidential term and center-right newcomer Kyriakos Mitsotakis take over as PM, respectively. Over in the US, there’s been a battle for front-page coverage between the debt-ceiling crisis, sky-high interest rates and Donald Trump’s legal woes.

In Sport/Middle Eastern current affairs, Abu-Dhabi owned Manchester City won the treble, while the PGA merged with LIV, after initially refusing due to the rival golf tour’s owners: the Public Investment Fund of Saudi Arabia. Over in Europe, the Eurozone economy slowed sharply and the Bank of England hiked interest rates to 5%, triggering a mortgage crisis. Meanwhile, China has continued to deny their very real debt crisis, Brazil's Lula rejected a Mercosur trade deal with the EU and Russia spent the last weekend of the month fighting off a coup.

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Featured: BRICScoin?

The BRICS (Brazil, Russia, India, China, South Africa) group finds itself at a geopolitical crossroads. Its ambitions are clear: become a tangible alternative to the G7, engineer a power shift away from Western dominance and end the US dollar’s reign as currency of choice for global trade, potentially via the introduction of its own common currency.

There are, however, a few blockers. All the usual stuff, really. Vastly different economic and inflationary situations, recent border-shootouts between founding members and *deep breath* fears the host nation of the recent BRICS summit would be forced to arrest the president of another member nation were he to attend due to an international arrest warrant for allegations of war crimes issued by an international court said host nation sits on. Oh, and the small matter of a militia coup last weekend…

And yet… these are optimistic times for BRICS. Its de-dollarisation efforts are having an impact, while other emerging markets are queuing up in their droves to get their hands on a membership card.

Discover what the future of the BRICS could look like, the issues with a common currency and how so much of this hinges on the inflation situation across the five countries in our blog ‘The future of BRICS’.

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‘Raise and Deploy: The International Investing Podcast’ Episode 2 is now live!

Our second guest is Dan Rummery, Partner and Co-founder of Brunel, a boutique capital advisory firm. In this episode, Dan shares his thoughts on raising and deploying capital throughout North and South America, the changing tides of investment in Brazil and the lessons he’s learned in his almost 20 years in the sector. You can find it on Spotify, Apple Music and RSS.