The natural resources sector has a lot of potential for investors as not only the consumers but also the producers are based in high-growth emerging markets, according to experts at Switzerland-based Gaia Resources Fund.
The fund's strategy is to invest in stocks such as emerging producers of energy products, base and precious metals, bulk materials, agricultural products and related companies from the infrastructure and logistics fields.
In a recent letter to investors, Gaia Resources Fund listed 10 drivers for investing in the natural resources sector. Click ahead to discover what they are.
In countries like China, India, Brazil and others, rising incomes drive demand for basic consumer goods.
China's economy, the second-biggest in the world, advanced by 10.3 percent, and income per capita in its rural areas increased by 10.9 percent in 2010.
Demand is also increasing for better services, and there is greater diet diversification.
Spending on infrastructure in the developing world is estimated to be worth between $6 billion and $8 billion over the next three to five years.
Replacement of infrastructure should create tremendous demand for all commodities, as roads, high-speed railways, power grids, construction projects, and oil and gas distribution are slated for development or upgrade.
Most emerging economies have lower debt than developed ones, and they have large reserves of hard currency.
Those two factors give emerging states purchasing power and a larger capacity to invest, thus making such investments likely to rise in the future.
Private sector debt is also very low, creating large consumer demand potential and spending power.
The International Monetary Fund (IMF) predicts that emerging economies will grow by 6 percent between 2011 and 2014.
That growth rate is manageable and at the same time bullish for commodities, according to the Gaia Resources Fund letter.
An expanding global population drives demand for more of all commodities, such as electricity, oil, housing, food, the letter said.
The United Nations has projected a world population increase of about 47 percent from 2000 to 2050, to around 8.9 billion.
As people migrate to cities, demand for natural resources increases, according to Gaia Resources Fund.
That's because they demand better services—improved transportation, for example—and more products such as refrigerators and air conditioning.
They also consume more foods high in protein and processed foods.
Many developing markets have natural resource deposits.
For example, Africa has up to 30 percent of the world's mining deposits, according to Gaia Resources Fund.
The countries of the former Soviet Union, Brazil and Latin America have "tremendous potential to develop additional farmland," the letter said.
Existing supply constraints are unlikely to do anything other than push natural resource prices higher.
Years of under-investment, regulatory red tape and significant lead-up to first production all limit suppy, the letter said.
Many metals and mined products face those constraints throughout the world.
Countries like China, Saudi Arabia, UAE, Korea and Japan, with significant currency reserves and importers either of food or of energy or both, are worried about security of supply.
They allocate significant financial resources to buy concessions for mineral resources, food production and energy development abroad, the letter said.
The traditional safe haven against inflation, gold, is still priced below historical highs in real terms, according to Gaia Resources Fund.
In emerging countries, the jewelry trade "is alive and growing" because people appreciate gold due to its reputation as a store of value, but also because of the status it brings, the letter said.
Of course, as with any set of investments—especially a group that's seen major price leaps over recent months—natural resource-related stocks carry risk. Have the producers of energy products, metals, and other items critical to natural resources peaked? Or do they have more room to run? Investors in copper, for example, may argue for the former, given that the commodity has moved off highs since February of this year.