The global economic narrative is changing rapidly, with the emphasis moving from Asia and the fast-growing markets in the East, back to the developed West Commodities investors are shifting their strategic focus away from China for 2014 as they search out clues as to the direction of prices.
The global economic narrative is changing rapidly, with the emphasis moving from Asia and the fast-growing markets in the East, which have driven the commodities “super-cycle” over the past decade, back to the developed West.
Understanding how this shift will affect commodity markets is the main challenge facing investors in the months ahead.
“The decade from 2002 onwards was largely characterised by a shift from developed countries to emerging markets and a super-cycle in commodity prices,” said Teis Knuthsen, chief investment officer at Saxo Private Bank.
“These rotations are starting to roll back, helping to improve the outlook for the US economy in particular.”
The US, unlike China, is more self-sufficient in almost every major category of commodity, from soybeans to crude oil and coal.
The flexibility of the world’s largest economy also means that when firing on all cylinders it can quickly change gears on production, creating lower prices for the raw materials and energy that it needs the most, or use the dollar’s purchasing power to import more of what cannot be produced in sufficient quantities domestically.
“The decline in energy prices is most pronounced in the US and provides a comparative advantage, which again helps attract foreign investment,” said Knuthsen in his latest note to investors.
“Low inflation, falling commodity prices, low interest rates and rising growth is a positive combination for many western economies, which may result in a long-term recovery and high corporate earnings.
In contrast to this, many emerging market economies struggle with rising inflation, rising interest rates and slowing growth. I therefore reiterate the recommendation again this year to underweight emerging markets.”
The unlocking of vast stocks of oil and gas held in shale rocks throughout the US has provided the catalyst for the economy’s revival since the financial crisis hit.
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