It’s a fact: More and more people are consuming goods. As developing nations rise out of poverty, the demand for basic resources will increase and commodities, along with related exchange traded funds (ETFs), may experience the upward pressure in prices.
Emerging market economies are expanding to their own tune and they are demanding more commodities to fuel that growth, which will put upward pressure on commodity prices for everyone, writes Harold L. Sirkin for BusinessWeek. [4 reasons to watch emerging markets.]
It should also be noted that besides the basic laws of supply and demand, there are some other factors that will also contribute to the rising cost of commodities:
- A rising middle class in rapidly developing emerging economies. Around a billion people have moved out of poverty and entered the growing ranks of consumers. The growing number of people purchasing more stuff is increasing the amount of basic commodities being consumed. And the trend will likely continue. Experts believe that as many as two billion people may join the middle-class by 2030. [What CFTC’s proposal may mean.]
- Large-scale infrastructure investments in emerging economies. The large swaths of new workers in the market has prompted the need for more infrastructure projects to accommodate the movement of the masses. It is calculated that developing countries alone will account for $2.25 trillion annually over the next three years to meet infrastructure needs, which again will affect the demand for, and prices of, commodities and raw materials that will be used for the projects. [Will platinum and palladium outshine gold?]
- The emergence of a large low-income-consumer base. Many of these consumers until recently were struggling just to feed themselves. Today, they have jobs and while they’re still poor, their quality of life has improved. They’re buying tractors for the first time, moving up from bicycles to cars or scooters and getting cell phones. [Why commodity ETFs underperformed spot markets.]
For more information on commodities, visit our commodity category.
- SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB)
- iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM)
- iShares S&P Global Materials Sector Index Fund (NYSEArca: MXI)
- iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.