Afghanistan: The Next Frontier for Mining ETFs?
Thursday, June 17th, 2010Michael Johnston submits:
As most investors are well aware, some sectors of the global economy tend to carry more risk and exhibit more volatility than others. At one end of the spectrum are utilities and consumer staples, two industries that tend to weather downturns relatively well but lag behind riskier sectors during bull markets. At the other end are those corners of the market that tend to lead the way both higher and lower in trending markets: high beta sectors that generally show greater volatility.
As evidenced by the performance over the last two years, the mining industry is one of the more volatile segments of the global economy. Because the profitability of hard asset producers depends on demand for raw materials, prospects dim when manufacturing operations slow. Conversely, in an expansionary environment demand for raw materials skyrockets, driving up commodity prices and padding the profitability of the companies responsible for getting resources out of the ground. But there is another element to the risk profile of the mining sector; discovering and accessing new reserves, a vital components of building future revenue streams, can be a challenging task.
