Do you favor commodities or specific countries? You can have it both ways, by combining categories and looking into exchange traded funds (ETFs) of countries rich with commodities and natural resources.
Why should investors consider single country funds? These country funds allow for some commodity exposure and provide a little more diversity over picking a single commodity fund. Potential investors should note that some funds are heavily weighted in commodities and their economies could be too dependent on them – Russia energy dependence is a prime example. It is worth the extra few minutes to peruse the finer details of specific country funds.
While there are many different commodity-rich countries to choose from, these are just some examples of countries that are rich in commodities.
South Africa. This country’s miners are the largest producers of platinum, gold and chromium. South Africa is an emerging market with a large middle-class. They have natural resources; developed financial, legal, communications, energy and transport sectors. But there is a high level of joblessness and poor infrastructure does constrain growth. The government tries to control inflation, have budget surpluses and create jobs through government-owned enterprises.
- iShares MSCI South Africa Index (EZA): up 3.9% year-to-date; materials is 29.7%
Chile. Its economy favors foreign trade and it has healthy financial institutions. Commodities make up around 75% of total exports and exports are 40% of GDP. Copper is a main staple of the country, which accounts for 33% of government revenue. The government adheres to a counter-cyclical fiscal policy by holding wealth from trade surpluses during economic growth, and goes into deficit spending when there growth is low or copper prices are down.
- iShares MSCI Chile Investable Mkt Idx (ECH): up 18.9% year-to-date; materials is 19.5%
Russia. Since 2000, Russia has improved its financial sector and they had high trade surpluses. But the positive trends started to reverse itself in the second half of 2008. Their banks are now faced with liquidity problems. The economy is heavily reliant on energy and raw materials. Investors are wary of the country’s corruption, institutions and exchange rates.
- Market Vectors Russia ETF (RSX): up 30.1% year-to-date; gas & oil is 40.2%
Australia. This is the world’s largest net exporter of coal. Australia has a high per capita GDP. The government focuses on reforms, low inflation, housing market and ties with trading partners like China. In recent years, their exporters of raw materials and agricultural products enjoyed the high prices of commodities. The government may also provide a fiscal stimulus to deter slow growth in 2009.
- iShares MSCI Australia Index (EWA): down 0.1% year-to-date; materials is 25.6%
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.