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Critical Economic and Market Commentary | 2.10.11

Steak or Fish for the Emerging Markets?



As emerging economies boom, food prices skyrocket

Written by Keith Springer

Emerging market investing is all the rage. Even though these markets are down more than 5% so far this year, everybody still wants a piece of it. Investors finally realize that demographic trends have drastically shifted, and that global growth will come from the likes of Brazil, China and India. To put it simply, the developed world (U.S. and Western Europe) is aging fast and spending less while emerging countries have more younger people entering their peak spending years.

This is creating tremendous growth potential for investors, with one negative by product: food inflation. My last 2 out of 3 CNBC appearances have been on this topic. In the U.S., annual meat consumption is about 130 Kilos per capita. In the European Union it is about 100 kilos. In China it is only about 55 kilos, but was only 38 kilos 10 years ago. In India it is at only 8 kilos, so there is a long way to go. In 1980 Taiwan was at a similar development stage to that of China’s today. Since then, Taiwan’s meat consumption has doubled from 44 kilos per capita to more than 90 kilos. By 2030, China’s meat consumption could be 85 to 90 kilos. On top of this, it takes about six kilos of grain to produce one kilo of beef.

I have gone through this history and agricultural lesson for a reason – to show a way for investors to participate in these new trends, which I list below. Remember, investing in emerging markets poses significant risks. I go into more depth in my recent TV appearances, so click below to see them.

View CNBC#1

View CNBC#2

Below are some interesting investment approaches, and not necessarily recommendations:

JJG (iPath DJ-UBS Grains Total Return Subindex) – An Exchange traded fund for individual investors who don’t play the futures market, It is 37.5% corn, 37.5% soybeans, and the rest is wheat.

DE (John Deere)  – They make the tractors

ECON (Emerging Markets Consumer Titans ETF) – A play on the emerging middle class

GDX (Market Vectors Gold Mining ETF) – Gold is always a good hedge for inflation

SLW (Silver Wheaton) – Silver usually moves in tandem with gold and SLW is a good low cost producer of both silver and gold.

Most importantly, the financial markets are as dangerous as ever and every investor needs to be invested appropriately to get the very best returns with the least amount of risk. That’s where we can help. Our active hands-on approach to managing portfolios can help you manage risk and deliver returns. If you would like to discuss the market, economy or simply get a free second opinion on your portfolio, call me for a free consultation today at (916) 925-8900.

Regards -Keith

P.S. If you know someone that would enjoy these newsletters or who could benefit from our services, I would very much welcome the introduction.

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