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Pro-Business Emerging Markets Need More Raw Materials Than Ever (GLD, JJC, USO, FXI, VGK)

November 3rd, 2011

Jonathan Yates: It is not mere coincidence that many of the best countries for commerce, according to a recent World Bank study, cater to the emerging economies that are hungriest for commodities such as oil (NYSEArca:USO) and copper (NYSEArca:JJC), not to mention indulging their lust for gold (NYSEArca:GLD).

The countries that facilitate commerce the most will naturally grow along with their neighbors that are growing the fastest and consuming the most commodities.

The World Bank report, “Doing Business,” ranks, in order, Singapore, Hong Kong and New Zealand as the most favorable countries in the world for “ease of doing business.”


Not a single one of these three countries is normally considered an “emerging market.” But all depend on extensive trade with some of the biggest and most resource-hungry economies of Asia and beyond.

While the United States — also not an emerging market by any stretch of the imagination, but a vast consumer of natural resources in its own right — was fourth, there are concerns about its maintaining this position.

A Wall Street Journal article about the report, “American as Number Four,” points out that there are “discouraging trends” in the United States. These included the difficulties in starting a business, the costs of forming a new enterprise and the relevant tax burden.

This trend will not serve investors well in American companies as it is not just Asia where a more pro-business climate is forming. A recent Financial Times piece, “Sub-Saharan nations praised for deregulation,” by Alan Beattie, focused on the progress in Africa for commercial enterprises.

Singapore, Hong Kong and New Zealand are obviously plays on China (NYSEArca:FXI) and Asia overall.  As the world’s largest consumer of most commodities, China has to participate in global trade as much as possible to access supplies of oil (USO), copper (JJC) and gold (GLD).  While the gold (GLD) is mostly for investment purposes, China and India are still major customers for the global output of the yellow metal.

For copper (JJC), this trend is even more pronounced.  China consumers more than twice as much copper (JJC) as Europe (NYSEArca:VGK), which collectively dwarfs China in terms of GDP but is still only the second-largest user of the key industrial metal.  In a growth-oriented market focused on China and the rest of Asia, Singapore, Hong Kong and New Zealand would only be hampered by anti-business measures.

It is also worthy of note for investors that Hong Kong, Singapore and New Zealand are essentially island states.  This necessitates a trade-oriented economy and national policy for survival.

This mandate by geography makes for a more pro-business climate in Singapore, Hong Kong and New Zealand, which will only lead to profits for investors.

Written By Jonathan Yates From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.


NYSE:GLD, NYSE:JJC, NYSE:USO, NYSE:VGK


 

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