Commodities across the board, ranging from natural resources to metals, are trapped in a vicious trading circle this year and see no sign of respite. This is especially true, as the Bloomberg Commodity Index has plunged nearly 13% in the year-to-date timeframe.
This is especially true in the backdrop of a strong dollar, global growth concerns, global supply glut and waning demand that have dampened the appeal for the commodities. Notably, a rising U.S. currency makes dollar-denominated assets more expensive for foreign investors.
In particular, persistent slowdown in the world’s largest buyer of raw materials – China – and the turmoil in the Chinese stocks have been the major culprits. To add to the woes, the latest disappointing trade data and China’s surprise move to devalue its currency yuan has raised concerns over the health of the world’s second-largest economy. This suggests that demand for basic industrial commodity inputs will remain weak.
Sluggish growth in Eurozone and a possible U.S. interest rates hike are also taking toll on the commodities market with an extreme bearish outlook on a number of commodities like natural gas, oil, coffee, sugar, wheat, corn, platinum, nickel, gold, aluminum, silver and copper.
While low commodity prices are threating a number of commodity producers and key producing countries, they are a boon to the raw material intensive nations. This is because persistent weakness in commodities has made raw materials extremely cheap for the countries that import them. It will lead to expansion in balance of payments, increase output and reduce inflation in these countries, thereby leading to a surge in overall economic growth.
As a result, commodities importing countries are expected to outperform as long as the commodities slump. In fact, some nations have seen this phenomenon take place while many are yet to see the positive impact of lower prices due to their slumping currencies. With the advent of ETFs, these nations are easier to play than ever.
In light of this, we have highlighted four country ETFs that could enjoy smooth trading in the months ahead should commodity price remain weak or fall further. Investors should note that these funds have a favorable Zacks ETF Rank of 2 (Buy) or 3 (Hold).