Fast-growing cities throughout Asia, Africa and Latin America are experiencing tremendous demographic shifts as rural farmers migrate to major urban population centers. In fact, the United Nations estimates that by 2015, 18 of the world's 22 largest cities and three-fourths of its population will be in emerging markets.

PowerShares Emerging Markets Infrastructure Portfolio (NYSE: PXR, $20.28) was launched just last month, allowing investors to tap into the trillions of dollars being spent to modernize the infrastructure needs of the world's emerging markets. And when I say trillions, I mean that quite literally.

Needless to say, the growth in emerging countries will require heavy investment to keep cities like Beijing and Mumbai from collapsing under the weight of their own people. In last week's TSA Digest issue, the "Featured Topic" discussed the pressing need for many developing nations to build or upgrade their water treatment and distribution facilities -- but this is only the beginning.

As these regions swell, they will most assuredly consume plenty of water. But they will also need better sanitation, newer highways, efficient mass transit systems, reliable power grids, and additional capacity to move freight through ports and railways. And we're already seeing the beginning of this growth spurt.

China, for example, is in the middle of middle of a five-year, $200 billion spending spree on railways, including a high-speed bullet train that will zip riders from Beijing to Shanghai (about 800 miles) in just five hours. And with air traffic exploding from eight million travelers a year in the 1980s to 185 million today, the country has also announced ambitious plans to build almost 100 new airports.

It is believed that China will be spending $725 million on such things over the next few years. Meanwhile, Saudi Arabia is funneling its petrodollars into more than 500 new projects, pushing spending in the Middle East to $400 billion. Elsewhere, we could be seeing $325 billion worth of expenditures in Russia, $240 billion in India, $225 billion in Brazil... the list goes on an on.

Not long ago, Merrill Lynch forecasted total infrastructure spending in emerging markets would total $1.25 trillion. Now, it has upped that projection to $2.25 trillion. And that's not by 2030 or some other distant date, but within the next three years.

Clearly, there will be many companies feeding at this trough: global engineering and construction firms, steelmakers, heavy equipment suppliers, and many others. And PXR offers a stake in about 60 of the world's most dominant leaders in these fields.

Familiar domestic names like Caterpillar (NYSE: CAT) are represented, but the vast majority (90%) of the portfolio is invested in foreign markets -- primarily China, South Africa and Indonesia.

With any fund, it's always a good idea to examine its largest holdings. And in this case, the largest stake is in ABB, a company I am quite familiar with and bullish on. ABB is one of the world's top suppliers of transformers, circuit breakers, capacitors, substations and other devices to support the generation, transmission and distribution of power. Over the past three months, orders from emerging markets in Africa and the Middle East surged +98%, pushing the firm's backlog for future orders to more than $30 billion.

And this is hardly an isolated example; other major holdings like Flour (NYSE: FLR) are reporting similar success and growing backlogs.

The infrastructure sector could well be the sweet spot of the next emerging markets boom. Over the past three years through the end of last quarter, the fund's index has already put up impressive annualized gains of +20%. But ABB and others are now priced for triple-digit upside potential. In fact, the entire portfolio is currently trading at just about 6.5 times earnings, on average.

As you know, emerging countries like China appear to have caught the same contagious economic sniffles that developed markets have been suffering from. But I think they will recuperate in time and continue spending heavily on highways, wastewater systems, hydroelectric dams and other projects that will bring them into the 21st century. 

Nathan Slaughter
Editor
The ETF Authority

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About Nathan Slaughter

Nathan Slaughter has developed a long and successful track record over the years by investing in both exchange-traded funds (ETFs) and deeply discounted value securities. When it comes to ETFs, Nathan has created a proprietary ranking system that helps him zero in on today's most promising funds.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley. 

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