The population of the world is growing at a rapid pace. Billions of people require more of just about every imaginable natural resource — oil, gas, grains, livestock, metals, materials and water.
Most people believe it will be difficult, if not impossible, for suppliers to meet the needs of businesses or consumers. And yet, a bump on China’s Great Wall… a small movement in the direction of restricting money supply… has caused adverse ripples in the stock prices of companies working along the resources stream.
Over the last month, the S&P 500 has dropped -3.7%. That’s a pretty large setback for a 30-day period. And still, the corporations that collectively make up Natural Resources ETFs fared considerably worse.
|One-Month Performance For Natural Resources ETFs (12/29-1/28)|
|SPDR S&P 500 Trust (SPY)||-3.7%|
|SPDR Oil and Gas Explor/Production (XOP)||-3.9%|
|PowerShares Global Water (PIO)||-4.4%|
|Market Vectors Coal (KOL)||-5.5%|
|First Trust Natural Gas (FCG)||-5.5%|
|Market Vectors Agribusiness (MOO)||-5.5%|
|Market Vectors Nuclear Energy (NLR)||-5.7%|
|Claymore Global Timber (CUT)||-6.9%|
|Market Vectors Hard Asset Producers (HAP)||-7.9%|
|SPDR Metals and Mining (XME)||-9.1%|
Is the reflation trade dead? It’s on hold… that’s for sure.
In truth, from time to time, people take profits. Sometimes they do it because they are scared. Sometimes they do it because they believe they can wait for prices to slide, and pick them back up at a discount. Nevertheless, developing economies are still going to need “stuff.”
What about China’s fiscal and monetary tightening? Growth throughout the region is inevitable. From a valuation standpoint and from a technical chart perspective, picking up the iShares MSCI All Asia excl Japan Fund (AAXJ) at an approximate price point of $50 would provide reasonable reward for the risk.
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.