New commodity super-cycle – what does it mean for EM?
JPM’s Kolanovic, head of macro quantitative and derivative strategy, has been, and still is bullish on commodities. According to JPM a new commodity super-cycle bull was born this year.
“Over the past 100 years there were 4 commodity super cycles and the last one started in 1996. We believe the last super cycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after 12-year contraction) and that we entered an upswing phase of a new commodity super cycle”, writes Kolanovic.
While we agreed on stronger commodity prices long-term, short-term headwinds could be already emerging. China credit impulse is now weakening due to policy of deleveraging, see our note China – back to the future.
The commodity super cycle might be about to take a pause. On the chart below by Nordea Macro Team, Bloomberg Commodity Index percent change plotted against China Credit Impulse 12 Month change, a clear divergence.
A reversal in commodity might be a good opportunity to get on the train if you have missed it so far. EMs offer the cheapest exposure to commodities. Traditionally they have been the frontrunners in a new economic cycle accompanied by strong commodity prices. But MSCI Index constituents have changed during the past decade, giving more space to China, Taiwan and South Korea Tech. TME readers have surely seen our note: Who are the commodity heavy weights in EM? By exploring Russia, Peru, Brazil, Chile, Thailand, and South Africa one would certainly find the cheapest, most efficient way to play the bespoken Commodity Super Cycle. For EM currencies, see our note on: Rising commodity prices – winners and losers in EM currency space.
A closer look on global equity valuations, cyclically adjusted, leaves no questions: US is expensive, Rest of the World ex US no longer cheap and EM in the doldrums, almost half of 2010 valuations.
“Over the past 100 years there were 4 commodity super cycles and the last one started in 1996. We believe the last super cycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after 12-year contraction) and that we entered an upswing phase of a new commodity super cycle”, writes Kolanovic.
While we agreed on stronger commodity prices long-term, short-term headwinds could be already emerging. China credit impulse is now weakening due to policy of deleveraging, see our note China – back to the future.
The commodity super cycle might be about to take a pause. On the chart below by Nordea Macro Team, Bloomberg Commodity Index percent change plotted against China Credit Impulse 12 Month change, a clear divergence.
A reversal in commodity might be a good opportunity to get on the train if you have missed it so far. EMs offer the cheapest exposure to commodities. Traditionally they have been the frontrunners in a new economic cycle accompanied by strong commodity prices. But MSCI Index constituents have changed during the past decade, giving more space to China, Taiwan and South Korea Tech. TME readers have surely seen our note: Who are the commodity heavy weights in EM? By exploring Russia, Peru, Brazil, Chile, Thailand, and South Africa one would certainly find the cheapest, most efficient way to play the bespoken Commodity Super Cycle. For EM currencies, see our note on: Rising commodity prices – winners and losers in EM currency space.
A closer look on global equity valuations, cyclically adjusted, leaves no questions: US is expensive, Rest of the World ex US no longer cheap and EM in the doldrums, almost half of 2010 valuations.