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Copper Follows Emerging Markets Higher

copper

As I’m working on my thesis that the Emerging Markets may have bottomed, I have been looking for support from other related investments.

In the chart above, you can see that Copper – a leading economic indicator – has turned up at the same time as the chart of the emerging markets I showed you in the previous post.

Copper usage is so closely tied to industrialization and growth of the middle class in the developing world that its price turning upward is supportive of the prices for emerging markets stocks to be moving higher.

Commodity Index ETF

This chart of the Commodity Index exchange traded fund shows that it is also moving higher as other commodities besides copper (Ag and other industrial metals) have also begun to move up.

The defensive stocks have started to sell off as investors begin to shift from consumer durables – like Procter and Gamble in the chart below – to investments with growth potential.

P&G

US Industrials that have significant sales to the emerging markets have also turned higher as you can see in the chart of Cummins Engine below.

Cummins Engine

So what’s it all mean? If the emerging market stocks are forecasting an end of monetary tightening and subsequent economic stabilization in the emerging economy, then the investments that are connected to those economies should lead the markets in coming months.

Its too early to go all-in on this thesis as we are only seeing the technical signs that its happening – from a fundamental standpoint, emerging markets are still in monetary tightening mode. However, the stock markets always react first and move higher in anticipation of easier monetary policy and we may be seeing that reaction now.


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Mark