Business News

Sun to Set on Commodities Super-Cycle: Morgan Stanley Strategist


The massive commodities boom of the past decade is at its tail end given the slowdown in one of the largest consumers, China, says Ruchir Sharma, Head of Emerging Markets at Morgan Stanley Investment Management.

“China's growth is downshifting to a lower plain, its very commodity-intensive phase of growth is coming to an end. This to me marks a big decade of increase in commodity prices coming to an end,” Sharma told CNBC Asia’s “Squawk Box” on Wednesday.

“I suspect that we're headed now for two decades down as far as commodity prices are concerned. This is the sunset of the big commodities super-cycle,” he said.

The 200-year history of commodity prices shows a repeated trend of two decades of price declines, followed by one decade of price gains, according to Sharma.

The current up-cycle in commodities led by Chinese demand together with stupendous growth in other emerging economies is now reaching its end, with raw material markets seen under pressure in recent months.

Copper prices, which areseen as a gauge for the world’s economic health due to its extensive use in the manufacturing industry, have fallen 13 percent over the last three months. Brent crude and gold prices have fallen 14 and 9 percent, respectively, over the same period.  

Earlier this month, the world’s largest miner, BHP Billiton , announced that it has pulled back on plans to spend $80 billion on expansion projects, warning that it expects commodity markets to cool further.

“Australia, Brazil, Russia - I think all these economies will have to cope with lower commodity prices over the coming decade compared to the big windfall they enjoyed over the past decade,” Sharma said.

“What these countries forgot is that the big boom over the past decade was very much because of a global tide lifting all boats; it was not about their own economic policies,” he added.

—By CNBC Asia’s Ansuya Harjani