By John Wasik
CHICAGO Dec 6 One of the ways to globalize your
portfolio and to tap growth in emerging markets is to recognize
the new China Syndrome. The world's most populous country is
becoming a primary buyer for resources and technologies for its
China's growing demand will continue to boost prices on
everything from farmland to oil. The country now consumes more
than 40 percent of the world's base metals, 23 percent of major
agricultural commodities and 20 percent of non-renewable energy
resources, according to a recent report by the International
Monetary Fund. Those figures are up from single-digit levels in
2000, in terms of net imports as a percentage of world imports.
There are a number of ways to invest in this trend through
exchange-traded funds, but first you need to understand the
breadth of its global implications.
In the view of economist Dambisa Moyo, author of "Winner
Take All," China's voracious appetite for everything from
aluminum to water will change geopolitics and drive commodities
prices higher over time.
The Zambian-born, Oxford- and Harvard-educated Moyo visited
22 countries to detail China's influence in her research for the
book. She says China has been aggressively cutting deals on
every continent to acquire the resources it needs to feed its
people, build infrastructure and make consumer goods. In effect,
China has become a "monopsomist," a single buyer that will
outbid all other parties to acquire what it needs.
"China is trying to lift some 300 million out of poverty in
30 years," Moyo said in a speech before the Chicago Council on
Global Affairs on Nov. 29. "There are more poor people in China
than in all of Africa. In only eight years, the country will
have 221 cities with over 1 million people." The U.S. now has
China's most immediate needs, once it works through its
current infrastructure boom, is food and water, Moyo said. The
country is running out of arable land and fresh water, so it is
buying food overseas and investing heavily in desalinization
while also building dams and diverting rivers. This will create
demand for more efficient agriculture, fertilizer and water
production and conservation technology.
Energy will also be in greater demand. Although the U.S. is
still the world's largest per-capita energy user, China is the
largest overall user, according to the International Energy
Agency. That will put upward pressure on oil, coal and natural
gas prices and favor the largest companies in mining and oil
exploration and extraction technology. The International
Monetary Fund estimates oil prices will hit $200 per barrel in a
In addition to energy, China will continue to pay top dollar
for mineral resources such as copper. It has already purchased a
mountain in Peru for its copper reserves, and it is scouring
every continent to acquire more resources.
HOW TO INVEST
There are several ways to invest in the China Syndrome,
largely through ETFs. Yet, you should treat them as small
buy-and-hold satellite positions. They concentrate company and
sector risk and are notoriously skittish, as are most
commodity-oriented funds. Only dedicate a small portion of your
portfolio to these funds and do not try to time the market.
If you already have broad-based emerging market holdings,
you can micro-allocate to specific commodities such as copper.
An exchange-traded fund such as the First Trust ISE World Copper
Index, invests in leading mining companies such as Rio
Tinto and Freeport McMoRan.
A similar specialized play would be in water technology
companies through the PowerShares Global Water ETF,
which holds companies like Flowserve and Waters Corp
Broader approaches, though, will capture a bigger portion of
profits coming from commodity price increases. The Vanguard
Energy ETF holds the largest global energy producers
such as Exxon Mobil, Chevron and Schlumberger
An even more diversified basket of resource stocks would be
the IQ Global Resources ETF. The fund owns major mining
stocks such as Rio Tinto and BHP Billiton ; processed
food companies like Hormel Foods and Tyson ; and
old-line energy producers like Peabody and Consolidated
Energy. The fund also owns positions in livestock,
water, timber, grains and metals stocks.
One of the worst ways to invest in the China Syndrome in
recent years has been through stocks listed on Chinese
exchanges. Not only are these stocks incredibly volatile, they
may not reflect the economic activity in resource acquisition
outside of the country. They also may be suffering from outside
investors' negative views of the country's slowing growth, which
has hurt Chinese stocks. One popular ETF -- the iShares FTSE
China 25 Index fund -- is down more than 8 percent over
the past half decade. As always, make sure to do your research.