Emerging global markets too big to ignore

In “The Half-Time Report: A Mid-Year Look at Commodities and Emerging Markets,” a US Global Investors presentation, CEO Frank Holmes and members of the portfolio management team discussed how the world’s most quickly developing countries are affecting commodities demand and what this could mean in the future. Although 2006 started slow, both commodities and global emerging markets outperformed the S&P 500 by June. China and India have been the leaders in global economic growth.

China’s GDP, in fact, is just 3.1% below the US. China has actually picked up a lot of the United States’ slack in GDP, which has “helped maintain the global boom,” according to Holmes. “Economies like China and India, the politicians know very well that to stay in political power, they must create jobs. The sustainable process for creating jobs is infrastructure. That leads to a higher GDP growth.”

GDP growth is also pushed by industrial production and output in these countries, specifically of commodities like oil and copper, he said. Commodity trading is important to emerging countries because volatility can be used to their advantage, according to Holmes. “Whenever the dollar is weak and a commodity is strong, you get exaggerated moves in that particular commodity." In the gold market, for example, the dollar is inversely related to gold 80% of the time, Holmes said.

“When you see gold rising rapidly over any 60-day trading period and the dollar has been falling, the power of a correction is massive.” (commodityonline.com)