In the years since the financial crisis, emerging markets have been awash with free-flowing global liquidity. Easy money from western central banks – notably the Fed – has driven up equity markets and currencies, and slashed borrowing costs.
On Wednesday, the QE punchbowl is finally set for the dishwasher. So will investors in emerging markets call it a night? Read more
By Michael Power, Investec Asset Management
“Are we nearly there yet?” Most of us have faced – and in our younger days probably asked – the same question. As with children on long car journeys, this question is also posed by investors who cannot wait for bear markets to be over.
Commodity investors – and recently this has expanded from the metals and coal complexes to include oils – are wondering aloud when their recent ordeal will all be over. The same can be said for investors in those commodity-rich countries, as they survey their currency-ravaged portfolios. And this phenomenon is not confined to emerging markets (EM) – investments in Australia, Canada and even Norway have suffered the same fate. Read more
Financial market traders kicking their heels for much of this year over the (to them) maddening lack of volatility have at last been given something to work with. Several commodity prices have dived lower over the past few months, setting off reactions across a range of different markets.
The usual response would be to worry about emerging markets across the board, particularly net commodity exporters, which have been benefiting from juicy export earnings over the past decade. Indeed, if the current movements mark the end of the up phase of a commodity super-cycle, emerging markets could be in for a tough time for a long while. Ghana and Zambia, which recently called in the IMF after falls respectively in gold and copper prices punched holes in their fiscal and current account positions, are cautionary tales.
Yet there are two reasons to be cautious about hurtling to sweeping conclusions. Read more
Until about a decade ago India was barely producing enough cotton to meet its own needs, let alone export the stuff. But this year Asia’s third largest economy will overtake China to become the world’s biggest producer of cotton.
Data from the US Department of Agriculture released on Thursday suggests that India will produce 30m bales of cotton in the season that began August 1 while China will produce just 29.5m bales. Read more
Following Nigeria's example?
The International Monetary Fund’s “Africa Rising” conference opened in Maputo with gushing descriptions about the “potential” and “opportunity” of the fast growing continent.
IMF chief Christine Lagarde, the guest of honour, told the gathering of politicians, aid workers and business types that “we are witnessing a moment of transformation in Africa.” Former US President Bill Clinton joined in via video to talk of Africa’s “remarkable economic progress.”
Yet intertwined with the unabashed bullishness were warnings about the potential potholes that line the road ahead, especially for those nations endowed with rich reserves of the natural resources that have been driving much of the continent’s heady growth. Read more
Montezuma’s revenge is now no longer just for tourists visiting Mexico. The nation’s pig industry has caught it, too.
The Porcine Epidemic Diarrhoea virus, or PEDv, which has ripped through hog herds in the US and hiked Chicago pork prices, has already shown up in most pork producing states in Mexico. Read more
Two new exchange traded funds giving investors access to South Africa’s palladium market have hit the ground running.
Standard Bank’s AfricaPalladium ETF, launched on March 24, had grown to R300m ($28.4m), the equivalent of 33,000 ounces, by March 28, the bank said. Absa, a member of Barclays, unveiled its NewPalladium ETF on March 27; by Monday afternoon Absa said current listings being processed, to be concluded on April 2 and 3, showed the fund had grown to 24,847 ounces of palladium, valued at R200m.
Generally, commodity prices have come under pressure globally. So why would now be a good time to launch a palladium-backed product? Read more
A cartoon in a Mexican newspaper last week said it all: there are Adam and Eve, in the Garden of Eden, gazing wistfully at the forbidden fruit. But it’s not an apple. It’s a lime.
Just about everything to eat in Mexico gets served with a wedge of lime, but buying them lately has been tricky. At one recent Sunday market in Mexico City, stallholders rolled their eyes when asked for what is normally the most ubiquitous of fruit. “No, too expensive,” was the answer rolled out at stall after stall. Read more
By Paul Bloxham of HSBC
Global commodity prices are significantly higher than they were a decade ago. Indeed, despite having fallen around 20 per cent in the past three years, they remain over 110 per cent above their 1990s average, in inflation-adjusted terms.
This rise in commodity prices over the past decade was largely driven by higher metals and energy prices. As the emerging economies, particularly China, urbanised and industrialised they needed to build more roads, bridges and housing, which supported strong demand for hard commodities and energy. In turn, rising commodity demand occurred against a backdrop of weak supply due to underinvestment in mining capacity, which drove prices higher. Read more
For many emerging markets, the most worrying aspect of Chinese economic statistics announced on Thursday is that they reveal a slump in the construction spree that has sucked in vast quantities of metal ores and other commodities from Latin America, Africa, Russia and parts of Asia.
But which EM economies are most vulnerable as China throws the commodity cycle out of joint? Craig Botham, emerging markets strategist at Schroders, has come up with a vulnerability ranking (see chart) that identifies the exposure of EM countries to a slowdown in net non-food commodity exports to China. Read more
When billionaire Suleiman Kerimov and his business partners sold their stakes in Uralkali, the Russian potash miner, at the end of 2013, analysts expected a prompt restoration of Uralkali’s export cartel with its former Belarusian partner, state-owned Belaruskali.
Yet both parties seem happy with things as they are. Any revival of the cartel looks more likely to be driven by political than commercial considerations. Read more
The World Bank’s private sector lending arm has been very publicly rapped over the knuckles for its handling of an investment in Honduran palm oil company Corporación Dinant, which human rights groups allege has links with death squads and the killing and torture of peasant farmers who claim the land where it operates.
But if the shaming of the IFC in an independent audit by the Office of the Compliance Advisor/Ombudsman (CAO) were not bad enough, Peter Chowla, co-ordinator of the UK-based Bretton Woods Project, says: “Some of the most damaging findings from this case are yet to come.” Read more
The formal World Trade Organisation gathering in Bali in early December already has some strongly positive news – a global trade deal is on the cards – a rare and big achievement.
But some issues are still a bit thorny – take cotton. In the past, African governments lambasted the US and EU for their cotton subsidies. Now it’s India and China that they should worry about. Read more
Another week, another barrage of criticism for Thailand’s massive rice subsidy scheme.
This time the attack on a programme that is costing the government billions of dollars a year and adding to worries about the country’s economy is delivered diplomatically, but none the less forcefully, by the International Monetary Fund. Read more
They say timing is everything in business, and the Indian guar gum producers who invested in new capacity early last year – just as the US fracking business realised it needed thousands of tonnes of the stuff in a hurry – either got lucky or timed their market entry to perfection. But is the multi-billion dollar boom in this once obscure commodity now over? Read more
Are commodities over-valued? There are two schools of thought on the subject, one that says constrained supply and surging demand from emerging markets is the key driver of price, and the other that suggests high prices are a consequence of market speculation (boosted by cheap money).
McKinsey’s annual commodity report, released on Thursday, gives succour to the latter group. The chart below shows average commodity prices since 1980, combining metal, food, energy and raw material prices. Average prices are about 12 per cent down on their 2008 peak – but they are still more than double what they were in 1980. The commodity super-cycle “isn’t dead”, it suggests. Read more
By Paul Bloxham of HSBC
Commodity prices have been broadly steady over the past year. This is despite China’s slowdown, fears of Federal Reserve tapering and nervousness about the emerging economies. Indeed, commodity prices are still over 120 per cent above their 1990s levels, in inflation-adjusted terms. This may have surprised some observers, particularly those expecting the end of the so-called commodities super-cycle and forecasting large commodity price declines. So far, it has not happened. Read more
Talk about being opportunistic.
Just as Wall Street’s biggest banks are facing increasing regulatory scrutiny over their involvement in metals warehousing and physical commodities trading, along comes Brazil’s BTG Pactual looking to make a foray into this very lucrative niche. Read more
It has been quite a fortnight for Colombian mining.
First, small-scale, informal miners staged demonstrations demanding provisions be made for them in the country’s mining code. Then, miners at the Colombian operations of US coal miner Drummond went on indefinite strike.
To crown it, Canada’s Braeval Mining, a gold miner, said it was pulling the plug on an option to acquire a mining area citing “unfavorable market conditions”, after one of its geologists was kidnapped by the country’s second largest rebel group early this year. Read more
South Korea has announced it plans to set up a gold exchange in 2014 to much fanfare – but analysts warned that it might be poorly timed, given weak demand for bullion amid the global economic slowdown.
The country’s financial watchdog said on Monday that spot gold will be traded on its main bourse from early next year as the government is keen to boost transparency of gold trades and root out shady deals used for tax evasion. Read more