Natural Resources Open to Investment in Emerging Markets
Natural resources are a, well, natural option if you’re interested in investing in emerging markets. Many emerging markets are rich in resources the world wants — or will want soon — and money you invest now may earn you a nice return down the road.
Investing in energy
Modern life is highly dependent upon energy. Investment opportunities include:
Traditional carbon energy: The big fossil fuels are oil and coal. Oil companies benefit from scale economies and tend to be profitable. Several emerging-market oil companies are open to investors, including Petrobras in Brazil; PetroChina and Sinopec in China; and Gazprom and Rosneft in Russia.
Alternative energy sources: When fossil fuels are used up, alternative energy sources will be in high demand. Currently biofuels take about as much energy to produce as they generate in use, although that may change over time.
Investing in minerals
Metals and minerals are the basis for much of the development that makes developed countries developed. Major categories include:
Industrial metals, used for structural and manufacturing purposes, fall into two main categories: ferrous (iron and steel) and nonferrous (everything else). They’re relatively common, but they still have a great deal of economic value.
Precious metals are rare, shiny, and were used as money in years gone by. Partly because of that past value, many people buy precious metals in the hopes that they’ll return to use as currency. Although some precious metals have industrial value (gold is used in semiconductors, and platinum is used in automotive emission control systems), the most common uses for gold, silver, and platinum are for jewelry and collectible coins.
Gemstones are pretty, which makes them popular in jewelry. Many gemstones also have industrial uses. Diamonds, for example, are used for cutting tools, and corundum (rubies and sapphires) is used in laser devices.
The problem with investing in gemstones is that the quality evaluation is subjective, and it isn’t clear how much of any gem is out there. If you’re interested in gems, consider investments in mining companies or jewelry companies rather than the actual stones, because the investment value of stones is ambiguous.
Specialty materials often are unimportant until someone discovers a use for them. For example, columbite-tantalite is a byproduct of tin mining that has great uses in electronics. Specialty materials have limited uses, but the uses may be vital.
Investing in trees and timber
A renewable resource, trees and timber have some fascinating dynamics for investors. First, you need land for it, and the land can have other uses when the trees are gone. Second, trees don’t have to be harvested in any one year, so if the market is poor, they can just keep growing.
Timber is used for construction, furniture, paper, and to fuel cook stoves. Trees are also used for rubber, food (especially fruit), and roofing thatch.
Some companies in the timber business are responsible and manage their land to sustain their operations. Others clear-cut forests, which not only turns a renewable resource into a finite one but also destroys the soil and contributes to climate change.
Investing in water
Absolutely necessary for human life, already a gallon of water can cost more than a gallon of gas. The two countries with the most fresh water are the emerging markets of Brazil and Russia. Water resources alone could turn these nations into the most powerful economies on earth.
It’s difficult to invest in water right now because it’s usually considered to be community property. Some companies handle private operations of local delivery systems, such as pipelines and metering systems, but attempts to privatize water itself haven’t been successful.
If you pay attention to only one natural resource in the next few decades, let it be water. Water will be significant to geopolitics and to investment opportunities for decades to come.