- Created on Tuesday, 04 October 2011 14:35
- Written by Sara Nunnally, Senior Research Director, Insiders Strategy Group
- Hits: 984
I want to tell you how to invest in emerging markets without investing in emerging markets.
Emerging markets are hotbeds of growth, but that's not always reflected in country-based ETFs. How do you capture the gains of foreign direct investment? It can sometimes take years before that money translates to investment opportunities.
And it's a "risk off" environment right now. With the markets struggling to find support, fear is driving investors back into gold. This precious metal was up more than 2% as the major U.S. indexes were down more than 2%.
Europe and Asia didn't fare much better.
That means investment money may be flowing out of emerging markets and into investors' mattresses. But some up-and-coming economies have cash of their own, and they have lots of projects in the works.
I get email alerts from Industrial Info Resources. This source tracks industrial projects around the world in energy, transportation, public works, and a number of other areas.
On Friday, China's National Development and Reform Commission approved a 700-megawatt co-generation power project for the city of Kashi in Xinjiang. This province is also in the news for planning 12 wind power zones by 2015 that would produce 8.5 gigawatts of power.
There are 357 projects currently underway in Brazil that will produce 24,253 megawatts of power.
A big driver of these types of projects is the massive influx of people into cities around the world. In 2008, the number of people living in cities was more than the number of people not living in cities -- for the first time in history.
This migration won't be slowing down any time soon.
The United Nations predicts that by 2050, 70% of the world's population will be living in cities, compared to only 30% right now.
In China alone, 81 new cities will be created over the next 14 years. That's the birth a new city every nine weeks... Can you imagine the amount of infrastructure needed to keep up with that pace? Not to mention the growth in existing cities.
It's not hard to figure out why people are flooding back into cities.
People get paid more when they work in a city. And while the cost of living is also higher in cities, the "amenities" are better, too. Like public transportation, access to a lot of healthcare choices, more schools, and available technologies.
It's these areas that investors should be looking at when investing in emerging markets in a "risk off" environment.
Big-name companies are raking in lots of contracts for city project around the world. Cisco Systems (CSCO:NASDAQ) set up an entire Korean city with broadband Internet access -- and the city isn't even completed yet.
And Siemens' (SI:NYSE) advanced control technology was chosen by Endesa Group to upgrade power systems in Chile, Brazil and Colombia.
ABB, Ltd. (ABB:NYSE) will be building two solar power plants in South Africa for the country's national power company Eskom. The plants are the first of their kind in the country.
But these companies aren't just involved in infrastructures in emerging markets. They are popular choices for developed nations, too. Siemens services the wind turbines on the island of Samsø in Denmark, which you've probably heard me talking about here at Smart Investing Daily.
ABB won a $1 billion contract to connect the North Sea wind farms to the German power grid.
Now, don't get too skeptical of all this "green power" talk; it's not just about that. ABB also won $144 million in orders from Saudi Arabia to built and upgrade the country's power transmission and distribution. It's all about efficiency and expansion.
On Oct. 1, Siemens launched a new fourth sector of its company: Infrastructure & Cities. Its website says:
In the coming days, the global population will surpass the seven-billion mark. Ever greater numbers of people want to live in cities and will do so. [...] In response to this growth, cities throughout the world will have to massively invest in expanding their infrastructures. The market for urban investments addressed by Siemens currently totals around €300 billion a year. Siemens already offers the world's broadest and most comprehensive portfolio for urban infrastructures.
That figure is sure to grow as cities grow and sprout up in both emerging and developed markets.
Keep both Siemens and ABB on your watch list. They've been beaten up over the past quarter and more, but look for a bottom in both if they can hold their current price levels.
A bounce could mean a good 15-26% gain for Siemens and 10-33% for ABB.
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