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Commodities to Power Emerging Markets Higher


Copper will be a key driver.

In addition, Chile's trade-surplus skyrocketed to over USD 20 billion by 2006, more than doubling the surplus from 2005. This same year, at the peak of the housing bubble in the US, Chile's exports of goods and services increased 41% year over year (with 42% of exports going to the United States) due in large part to rising prices for copper. Most investors would have exposure to copper either by holding stocks in a mining company like Freeport-McMoRan Copper & Gold (NYSE:FCX) or an ETF such as Global X Copper Miners (NYSEARCA:COPX) and First Traust ISE Global Copper Index (NASDAQ:CU).

In examining the US-Chile example, the drivers of growth were 1) a country with extremely strong demand for a good; and 2) a nation with an abundant supply and access to the good.
These factors were supported by an established trading relationship and an imbalance in competition of other providers of the good. During the housing bubble, the US demand for copper grew so exorbitantly that current production capabilities and imports from other countries could not meet its demand. Chile met the demand and the boom for both economies followed.

With the world's largest population, a burgeoning middle-consumer class, and a government supporting economic expansion, China's current production capabilities and natural resources cannot meet the demand of its development. As China completes its shift from an agrarian society to an industrial society, the demand for industrial commodities will only increase. Latin American nations are already trading extensively with China (China is Chile's largest trading partner). Thanks to abundant natural resources, including industrial commodities, this relationship should continue to develop.
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