Tony Sagami: China (NYSEARCA:FXI) isn’t just a global economic powerhouse. It’s a global military power as well.
And it isn’t about to let anyone forget that, least of all its Asian neighbors whom it’s battling over the rights to the South China Sea’s natural resources.
Buried deep beneath the ocean floor are rich oil and natural gas deposits. China needs those rich deposits to fuel its ambitious economic growth plans.
However, five other Asian nations also lay claim to this resource-rich area. But China plans to stop at nothing to take this million-square-mile frontier for its own.
Here’s why it could very well wrest control out from under its less-powerful competitors … and how we can profit no matter which nation lays claim to these valuable undersea treasures!
Resource-Hungry China Flexes Its Military Muscle
There isn’t a country in Asia that can match China’s military might. It has the largest-standing army in the world, but its navy is almost as impressive.
The People’s Liberation Army Navy (PLAN) is 225,000 men strong and composed of surface forces — including an aircraft carrier — submarine forces, naval aviation, and coastal defense forces.
China also owns the largest submarine force among Asian countries, consisting of eight to 10 nuclear-powered submarines and 50 to 60 diesel-powered submarines.
It’s using this arsenal to help make its claim.
Last week, China sent a powerful flotilla to a small chain of seemingly inconsequential islands off the shores of Malaysia, which is located more than 1,100 miles from its nearest shores.
China deployed some of its most-sophisticated Navy vessels to the eastern coast of Malaysia: an amphibious landing ship with armed marines and hovercraft, China’s most-advanced escort ships, and helicopters and fighter jets to provide aerial support.
Below is a screenshot that links to a free two-minute Al Jazeera video of the Chinese armada.
|China is one of six countries competing to control the South China Sea
and the vast oil and gas reserves is reportedly sits atop.
Malaysia — along with Taiwan, the Philippines and Vietnam — are none too happy about China’s aggressive land grab. They have appealed to the United States for help in countering China’s aggressive attempt to seize 1 million square miles of the South China Sea.
Other than some tough talk, however, the Obama administration has done nothing to stop China.
Whatever China cannot muscle away, it is buying.
Do you remember the $18.5 billion takeover bid that CNOOC, China’s state-owned oil company, made for Unocal? That bid was blocked by the U.S. Congress — and Chevron was the eventual victor — but that hasn’t slowed down China one bit.
Since then, Chinese oil companies have been on an aggressive international energy asset buying spree. In 2012, Chinese companies spent a record $35 billion buying oil and gas assets.
- CNOOC paid $15.1 billion for Canadian energy giant Nexen.
- Sinopec paid $2.2 billion for the shale gas assets of Devon Energy.
- PetroChina paid $1.63 billion for Woodside Petroleum, a division of BHP Billiton.
Since 2009, Chinese oil companies have spent a total of $92 billion on international acquisitions.
Energy isn’t the only natural resource that China is snapping up. China has been cutting deals for everything from coal to iron ore, cotton to lumber, soybeans to wheat, gold to uranium, and even water.
According to the International Monetary Fund, China is a gigantic consumer of natural resources and commodities. As a percent of global production, China consumed 20% of nonrenewable energy resources, 23% of agricultural crops and 40% of base metals.
In short, if it comes out of the dirt … China wants it.
I’m not talking about a one- or two-year phenomenon, either. The rising demand for natural resources is going to last for several decades, and it’s going to be one of the most-powerful investment trends you will see in your lifetime.
That demand is a simple matter of demographics. Gary Halbert, one of my good friends and a top natural resource/commodity expert, said:
“The world population is now over 7 billion and growing rapidly, creating an ever-increasing demand for a limited supply of commodities. I’ve been in commodities for 35 years, and I’ve never been more bullish on commodities over the long-term.”
If you want to make some big money, all you need to do is get “long” China, natural resources or, even better, China as a natural-resource play.
There are several ways to do that.
Option No. 1: Bet on the next takeover targets. You could buy the stocks of natural resource companies and cross your fingers that China buys them out. But even if a Chinese buyout offer doesn’t come, these stocks should do just fine.
Option No. 2: Invest in natural resource-focused ETFs such as:
- SPDR S&P Global Natural Resources ETF (NYSEARCA:GNR)
- iShares Global Energy Sector Index Fund (NYSEARCA:IXC)
- GlobalX Fertilizers ETF (NYSEARCA:SOIL)
- PowerShares DB Agriculture Fund (NYSEARCA:DBA)
- PowerShares DB Base Metals Fund (NYSEARCA:DBB)
- S&P Gold Trust (NYSEARCA:GLD)
|The SPDR Gold Trust (GLD) has gained 83%
in the past five years and keeps heading higher!
Or if you prefer a one-stop, cover-all-the-bases natural resource portfolio, take a look at funds such as the U.S. Global Investors Global Resources Fund (PSPFX) or the Aegis Commodity Portfolio product. (Note: I am not getting paid or receiving any compensation in any form for this mention. It is just an excellent commodity fund offered by someone I know and trust.)
It will be a bumpy ride, but I am 100% convinced that commodity prices are headed higher — a lot, lot higher — and deserve a significant piece of your investment dollars.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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