the Commodities complex is having
today lifted by the rising oil prices
after the geopolitical tensions took off
in the Middle East but today's bounce
aside it's been a miserable year for
anyone exposed to industrial metals the
slowdown in Chinese demand trashes the
price of everything from iron or copper
to nickel well here we got one measure
of the effect of China's weakening
industrial metals here in red you can
see just how Pauling Lee badly they've
done and the Brazilian rial the blue
line have both done appalling Lee and
more recently Brazil's had a little bit
of a rebound that's come as fears about
emerging markets have receded somewhat
but the broad patterns clear Brazil is a
major exporter of commodities suffers
when commodity prices fall that really
shouldn't be a surprise the question
since the summer has been how far this
reflects the reality of what's under way
in China after the equity bubble popped
and the currency was devalued a little
those who believe that China's headed
for a painful hard landing gained the
upper hand but as prices stabilized
investors noticed that the Chinese were
still going to work and buying iphones
hopes for a soft landing returned and
emerging markets as a whole rallied in
October outpacing developed markets this
month's been rather more mixed not least
because the renminbi has resumed its
weakening although not particularly
dramatically and emerging market stocks
have pulled back even as their
currencies the remnant be aside have
mostly held up a third option starting
to look increasingly appealing though as
I discussed in August China could have
something of a sherbet lemon economy
hard on the outside and soft on the
inside on here we've put the main
Chinese survey of manufacturing and
services and fifty here is the dividing
line between growth expansion here and
contraction down below manufacturing
shrinking and has been for a little
while but the well the growth of
services has slowed this has come down a
bit recently i should say this is both
of these lines are three month moving
averages
because it's quite a volatile series
well that growth has slowed somewhat it
is still growing for the moment looks as
though China's efforts to rebalance its
economy away from exports in heavy
industry and towards consumption are
working problem for investors is to find
something where that idea isn't already
fully priced in it's possible that
industrial metals will fall even further
if that manufacturing side and the heavy
industry in China's economy continues to
shrink after all in real terms price of
many industrial metals still more than
double where they were before china's
imports really took off in the early
2000s that was to happen you'd see sharp
falls hurting both emerging markets
reliant on commodity production and of
course the share prices of miners
already bombed out but after a fall in
prices of modern the third in the past
year for industrial metals and even more
for many mining stocks a bet on further
price drops does need very strong
conviction that's probably pretty hard
to get when anything that relates to
China and particularly the lack of trust
in its data on the other side company is
exposed to Chinese consumers and
domestic growth quite hard to find
outside China and those inside China
already look extremely expensive
compared to the state-owned behemoths
which dominate the country's old-line
industries China's grappling with some
very severe debt problems it's trying to
follow a route which other developing
countries fail to navigate smoothly it
may if all this goes wrong still ended a
much broader crisis for the moment it
looks as though markets are betting on
it being reasonably likely to have a
successful transformation but the same
time markets are beginning to recognize
even achieving such a difficult economic
feat would be tough for those who
prospered by supplying the old China