It seems like more or less anything can be deemed an asset class these days.
Here’s the latest one from Citigroup analysts: ‘Carbs’. No that’s not McDonalds and Coca Cola, but Canada, Australia, Russia, Brazil and South Africa, i.e. the world’s top commodity players.
More from Citi:
What are the CARBS? They are the countries that combine very large commodity assets with high stock market liquidity. In many ways, they have exhibited similar characteristics so far over the course of the commodity cycle.
What have they got. The five CARBS economies have some 29% of the global landmass, inhabited by only 6% of the world’s population, and are thus disproportionately important as exporters of commodities. They produce between a quarter and a half of most key commodities.
The Carbs together control assets worth nearly $60,000bn and produce between a quarter and a half of most major commodities:
Of course there are a number of significant differences between the Carbs. This is true both in terms of assets, where Russia owns the most and Brazil the least, and production, where Australia, Canada and Brazil all plan very significant increases in extraction in the coming years, while Russian and South African expansion plans are relatively limited.
Even with these differences, Citi considers the Carbs to be an asset class. And this is how to trade it:
The period of easy returns is over — Much of the performance of both domestics and exporters can be traced back to the huge price increases in commodities and the utilisation of spare capacity. We believe these drivers have largely run their course.
Where to make money now — The CARBS plan to increase commodity exports by 44% over the coming decade, so we see the best opportunities in providers of infrastructure. In addition, we favour domestic growth plays in low-penetration markets and the new high-growth commodity stocks.
Top picks — We highlight a series of stocks across the markets, from Canada Natural Resources and Fluor in Canada, to Santos and Boart Longyear in Australia, from Sberbank and Mostotrest in Russia to Iochpe and Itau in Brazil and Barloworld and Murray Roberts in South Africa.
Carbs are all well and good, but only as part of a balanced diet. Avoid FAT (France, Austria and Tunisia) and don’t forget to eat your VEGETABLES (hats off to anyone who can come up with a good acronym for that).
Related link:
A Simple Portfolio for a Resource Scarce World – Seeking Alpha