Commodities Headed for 'Significant Correction': Strategist
Global commodity markets are headed for a "significant correction" by year-end, warns Sailesh Jha, managing director, Asia macro strategy & sales at Jefferies Singapore.
While the growth outlook for emerging markets is "looking pretty strong", Jha highlights that in the next two-three months "data will soften and the tide will turn".
The Reuters/Jefferies CRB Index of 19 commodities has advanced as much as 14 percent over the last 12 months.
Contrary to the emerging view that Asia ex-Japan has decoupled from Europe and the U.S, he anticipates that the struggling recovery of Western economies will eventually dampen Asian growth, citing the market movement in 2007 as a case in point.
"We're likely to see fairly modest growth in the United States in the order of magnitude of anywhere between 2-3% and we still haven't seen the lagged impact of the slowdown in the US or in Europe on our data here in emerging markets," he said.
The current expectations for growth and earnings also appear lofty, he added, flagging that investors can expect a correction of 5-10% for Asian stock markets.
Jha points out that while the world is focused on a possible currency war, a slowdown in Asian growth will lead to a weakening of regional currencies by tail end of 2010. Central banks would not have needed to buy dollars to weaken their currencies at the end of the day, he said.