As they currently stand, the BRICS represent about 26% of global GDP, according to figures from Worldometers.info. The additional six countries bring that representation up to about 29%.
But money managers don't see the expansion as an expression of representation of world GDP, nor as an investment opportunity; rather, it's a geopolitical play, sources said, and is a non-event when it comes to investment.
"I think the motivation is purely geopolitical, to create a balance of power between western Europe and these emerging countries," said Thierry Larose, portfolio manager/analyst in the emerging markets bonds team within Vontobel Asset Management's fixed-income boutique. The firm has $117 billion in assets under management.
"Last month's BRICS expansion was an investment non-event and will do nothing to spur any kind of global interest by international investors," said Damien Buchet, CIO at emerging markets manager Finisterre Capital. The firm has $3.6 billion in AUM.
The reason? These countries are, largely, uninvestable or unattractive for a number of reasons: Iran is subject to international sanctions, Ethiopia's debt is rated CCC, Argentina is suffering from hyperinflation and has elections in October, and Egypt "is currently a situational story, with a lot of challenges on both the fiscal and balance of payments fronts," he said.
"So in short, apart from Saudi Arabia and the UAE, all other countries in the expanded BRICS are either sanctioned, too small or highly distressed to reinvigorate investor interest in the BRICS. This holds true for equities too, as none of these countries, except Saudi Arabia, the UAE, and perhaps Egypt, have a normally functioning and accessible stock market," he said.
Saudi Arabia and the UAE are good credits, he said, "but remain very highly rated with little spreads, and have not highly extended U.S. dollar bond curves."
Other sources also highlighted the difficulties of investing in some of the new countries.
"We don't imagine that the political expansion of BRICS will be the driving force for a renewed interest in emerging market equities," said Fiona Manning, fund manager on the Premier Miton Emerging Markets Sustainable Fund.
"Not least because of the problematic nature of investing in some of the new invitees from both a sustainability and practical perspective," she said, also highlighting Russia and Iran's sanctions and the potential for Argentina's currency devaluation. Premier Miton Investors has £10.5 billion ($13.1 billion) in assets under management.
Beyond those concerns, managers also expressed doubt over the actual concept of the BRICS: an exclusionary group that goes against the grain of investing in emerging markets in the first place for diversification purposes.
"The core principle of emerging markets as an asset class lies in the capacity to offer diverse exposure to countries in various contexts and stages of development," said Maria Negrete-Gruson, managing director and portfolio manager on Artisan Partners' sustainable emerging markets team. "We firmly believe that isolating a select few nations within the emerging markets category undermines the very essence of diversification, ultimately harming both investors and the broader economic development of emerging markets." Artisan has $142.8 billion in AUM.
Manning agreed. "In terms of equity investment, the BRICS concept was, in our opinion, somewhat flawed. Why would an active investor choose to artificially narrow their investable universe? To pursue attractive risk-adjusted returns, it seems sensible to us to cast the net as wide as possible," she said.