BRICS currencies as safe havens and hedges: An empirical analysis of their potential for G7 stock markets before and during the COVID-19 pandemic

In the context of the ongoing internationalisation of BRICS currencies, this article investigates their potential as safe havens or hedge assets against G7 stock markets before and during the COVID-19 pandemic. Due to the strong economic position of their issuers, BRICS currencies are among the most widely used across emerging markets. They can potentially build a resilient infrastructure to counter the dominance of the USD through the growing significance of BRICS countries in the world economy. Our results show that BRICS currencies show similar patterns, indicating that they are perceived as a group of currencies that generate the same risks. We distinguish three main factors (i.e. global, regional, and North American) which shape the relationships between BRICS currencies and G7 stock indices. BRICS currencies did not show strong-safe-haven or strong-hedge properties, but all investigated currencies could hedge the portfolios of world stock indices before the COVID-19 pandemic, with the renminbi as the strongest player. During the pandemic, neither the ruble nor the rand could perform as weak safe havens or hedges, indicating a low level of internationlisation; and the internationalisation of BRICS currencies was significantly weaker - the economic links increased and it was more difficult to use BRICS currencies to facilitate diversification. Overall, the renminbi was the best weak safe haven and weak hedge for all G7 indices and showed a much higher level of internationalisation than the other BRICS currencies.