Ambition is a wonderful thing, but when it comes to the basic materials companies, their acquisitions for 2006 and 2007 may have led them and their related exchange traded funds (ETFs) down a dangerous path.

Some of the world’s largest basic materials firms were lured by the great expectations that industrialization in developing economies would sustain, with steel, cement and mining companies to rake in profits. Instead, these industries now lead the recession with much more debt than normal, and concerns for credit default swaps are frightening, reports The Economist.

As a whole, the basic materials cycle is hyper-sensitive to business cycles, and their changes. The sector supplies materials for construction such as cement, steel and metals, and are also prone to changes within the demand for raw materials, such as gold, according to Investopedia.

The six major players in this sector are in debt $136 billion, and acquired much of this during the boom of 2006-2007. The credit default swap prices are rising among the six firms, which area type of insurance against bankruptcy.

• iShares S&P Global Materials (MXI): down 51.8% year-to-date; the six major companies are Rio Tinto; ArcelorMittal 2.3% (which has in MXI); Lafarge, Cemex, Xstrata, and Tata Steel.

Tags: Basic Materials, Emerging Markets, MXI, Sector ETFs