Climateer Investing: Société Générale's Albert Edwards:“Commodity and emerging-market bulls ignore the weak Chinese leading indicator at their peril...” (DEC. 1, 2010)

Wednesday, December 1, 2010

Société Générale's Albert Edwards:“Commodity and emerging-market bulls ignore the weak Chinese leading indicator at their peril...” (DEC. 1, 2010)

A few views of Albert's latest, first up, Bloomberg:
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....MORE

Here's FT Alphaville's take:

Indicator wars

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.
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

Finally, the WSJ Europe's The Source blog:

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?

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

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