China May Burst Commodity, Emerging-Market Stocks Bubble: Chart of the Day
Emerging-market stocks and commodities are in a bubble that will deflate as China’s economic expansion slows, according to Albert Edwards, a strategist at Societe Generale.
The CHART OF THE DAY shows what may lie ahead by tracking year-over-year percentage changes in a Chinese leading economic indicator, compiled by the Organization for Economic Cooperation and Development. The chart also includes MSCI’s Emerging Markets Index and the Continuous Commodity Index, a gauge that used to be the Commodity Research Bureau Index.
For 10 straight months, the OECD’s index has risen at a slower rate. The indicator stood at 9.8 percent in September, the latest month available, after peaking at 26.9 percent in November 2009.
“Commodity and emerging-market bulls ignore the weak Chinese leading indicator at their peril,” Edwards wrote in a report today....MOREHere's FT Alphaville's take:
Ignore those slumping Chinese leading indicators at your peril! Or — a dose of bearishness on looking at the OECD’s leading indicators, courtesy of SocGen’s Albert Edwards.Finally, the WSJ Europe's The Source blog:
Look away for now from that headline China PMI figure showing a seventh month of manufacturing expansion. Edwards tells a different story (emphasis ours):
Once again, China’s leading indicator is pointing towards a very significant slowdown in economic growth ahead. The last time the Chinese OECD leading indicator was this weak, commodity prices had just reached their euphoric mid-2008 peak, having spent the first half of the year resolutely ignoring the clear signals that the economy was about to slow sharply. Commodity and EM bulls ignore the weak Chinese leading indicator at their peril.
See also data from the Chinese National Bureau of Statistics, he says...MORE
Commodities, Emerging Markets to the Rescue, Right?
Given the euro zone’s endless debt mess and the U.S. labor market’s enduring torpor, who could possibly blame investors for sticking with this year’s golden alternative plays instead: emerging markets and the commodities they hoover up?More Albert:
Well, contain your shock but Societe Generale’s perennially bearish strategy duo of Albert Edwards and Dylan Grice could.
Oh, even this pair of curmudgeons admits the case has been compelling as weak growth in the West and Japan has forced yield-hungry investors to look elsewhere. And the latest manufacturing data out of China, November’s Purchasing Managers Index, showed a 21st straight month of strong growth.
All the same, our heroes caution strongly against sticking with EM and commodities now. They note that China’s leading indicator from the Organisation for Economic Cooperation and Development is pointing toward a very significant slowdown in economic growth, and that this tallies ‘absolutely’ with the numbers from China’s own National Bureau of Statistics....MORE
Société Générale's Albert Edwards Upbeat, Almost Chipper: See's Humanity Approaching Broad Sunlit Uplands (Nov. 17, 2010)
Société Générale's Albert Edwards Does Not Capitulate, Sees Emerging Markets Bubble Pop Triggering A 60% Decline In Equity Prices
UPDATED: Société Générale's Albert Edwards: Emerging Markets and Commodities (November 4, 2010)
Société Générale's Albert Edwards: Cry Havoc and Let Slip the...Ah Screw it (Oct. 20, 2010)
More from Société Générale's Albert Edwards (Oct. 5, 2010)
"Société Générale's Albert Edwards: "Batten Down the Hatches" (October 2010)
The Financial Times Gets to the Heart of What Société Générale's Albert Edwards is Saying (Sept. 24, 2010)
Société Générale's Albert Edwards: On Terminal Competitive Devaluation, The Nuclear Option, And How The Fed's Policies May Start An All Out War (September 22, 2010)
"Société Générale's Albert Edwards: 'Equity Investors Are In A Vulcan Death Grip And Are About To Fall Unconscious"' (September 2010)
And the 2008 series in which he foretold the future and made some of the funniest headlines of the financial crisis:
May 8, 2008We have a lot from Mr. Edwards. Copy and paste the keywords
This Week’s Advice: Canned Food, Guns and a Ham Radio
June 26, 2008
Société Générale: “We see a y-shaped global recession. We are going down before looping backwards”
September 5, 2oo8
Société Générale: Prepare for the Great Unwind, part Deux
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