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Analysts are always coming up with acronyms for geographically-based asset classes. Goldman Sachs analyst Jim O’Neill coined BRIC to indicate the four biggest emerging markets, and analysts refer to stressed European economies as PIIGS.Now, Citi has released a report about CARBS — Canada, Australia, Russia, Brazil and South Africa — five countries that make-up the world’s key commodity markets.
These countries control commodity assets worth about $60 trillion and together produce between 25% – 50% of most major commodities.
There are three main type of economies - providers of commodities, labour or consumption. CARBS markets are providers of commodities and Citi specifically refers to CARBS as countries that 'combine very large commodity assets with high stock market liquidity.'
With 29% of global landmass and only 6% of the world's population the countries become significant exporters. Commodity exporters like Saudi Arabia and Mexico are not part of the CARBS because they lack equity market liquidity.
Commodities as % of exports: 74%
Commodities as % of GDP: 17%
Commodity sector as % of local MSCI index: 50%
Canada has two centuries worth of oil and gas reserves, and emerging technologies are significantly cutting costs of commodities extraction. But the country needs to diversify its trading partners and would be severely impacted by a fall in commodities prices.
Commodities as % of exports: 60%
Commodities as % of GDP: 8%
Commodity sector as % of local MSCI index: 37%
Australia is the world's largest producer of iron-ore and coal. It is one of China's biggest trading partners. Its iron-ore and coal exports are reaching one-tenth of GDP. The Australian equity market has however lagged others CARBS markets because commodities sector equities represent a small share of the market.
Commodities as % of exports: 92%
Commodities as % of GDP: 23%
Commodity sector as % of local MSCI index: 74%
Commodities make up the largest share of the equity index and no other market is as dependent as Russia, on the price of a single commodity. But the market has performed pretty much in line with commodity markets of other CARBS nations.
Commodities as % of exports: 47%
Commodities as % of GDP: 15%
Commodity sector as % of local MSCI index: 45%
Brazil suffers from the 'Dutch disease,' which means they are experiencing an increase in natural resources exploitation and a decline in the manufacturing sector. The country's real effective exchange rate (REER) is up 115% since the beginning of 2003, and because of it Brazil's share of manufactured global exports has shrunk to 0.53% in 2010, from a peak of 0.66% in 2006. Meanwhile, the state is intervening more in the energy sector.
Commodities as % of exports: 64%
Commodities as % of GDP: 10%
Commodity sector as % of local MSCI index: 35%
South Africa has not benefitted from the commodity cycles as much as other CARBS economies. Mineral output has plateaued and mining investment has increased but not by much. Gold is set to become less significant in South Africa. But the country has about 80% of the world's platinum resources and local miners, in large part, dictate platinum prices in the market.