Investors remain off balance. The Greek financial crisis and the future of the irrevocable monetary union will take a few more days to play out. The Chinese stock market’s dramatic fall after an incredible bull move continues, and nearly half of the stocks have been suspended. China’s woes, plus some of their own developments has kept the downward pressure on key industrial commodities, including oil, copper and iron ore.
Commodities are back under pressure, sending ripples through various assets classes. Let us start with a recap of recent moves and drivers. In short, it looks like the risks are still bearish for energy and industrial metals, but not so much for agricultural commodities. We believe that the currencies and equity markets of the major exporters of industrial metals and energy are likely to continue underperforming.
Oil
The International Monetary Fund (IMF) is a global organization made up of 188 member countries that works to foster international financial stability and sustainable growth. Thus, when it weighs in on a nation’s financial policies, those opinions usually carry some weight. This is true even when the economy in question belongs to the United States.
Extensive commentary on the latest Indian GDP growth numbers has been unable to clear prevailing confusion on whether the economy is in its recovery phase or not. It would be more useful to focus on the data that the ordinary Indian cares about: jobs growth and employment. Yet, unfortunately, employment still does not seem to figure as a priority for Indian policymakers. This lack of attention to employment in a country that boasts the youngest population in the world is simply incomprehensible.
China’s One Belt, One Road initiative is currently the most important program for deep economic integration. The program envisages the revitalisation of old trading routes with a continental Silk Road Economic Belt and 21st century Maritime Silk Road. Despite its awkward name, the initiative is a well-conceived way for China to connect its economy to the rest of the world, with an early emphasis on links towards Europe through the rest of Asia.
Vietnam’s economy grew 6.28 percent from January to June, the fastest since 2008, according to government figures. The government is easing regulations and privatizing parts of the economy for further economic progress.
The expansion of trade among sub-Saharan African nations holds the key to faster growth and development to the benefit of all its citizens. To unlock this potential, countries will have to focus more on trade facilitation, including the simplification and modernisation of trade procedures.
Sub-Saharan African countries have the lowest trade among themselves compared with other regions. Intra-regional trade estimates are at about 10% compared with 40% in North America and 60% in Western Europe.
The factors that hinder rather than help trade
Chinese small-cap stocks saw an aggressive sell-off Monday as investors in the country look to avoid putting their capital at risk.
The Shanghai composite index rose 2.4% on Monday after spiking over 8% in early morning trading, but was one of just a handful of Chinese stock indices to see gains on Monday.
Small cap stocks in China fell over 3.6% on Monday, leading the declines of several other stock markets throughout the country.
Other stock indices have suffered similar declines, with the Shenzhen and ChiNext indices also posting losses.
Between the “no” in the Greek referendum and a sharp drop in oil and commodity prices, EM is starting the week on a bad note. Therefore, we think this is a week to be defensive. There has been limited contagion so far from Europe, in either FX or fixed income markets, but this can change quickly. MSCI EM is testing the March low, and it is on track to eventually test the December low.
India’s domestic and international economic choices have not always been the wisest.
At independence, India was determined to transcend the distorted pattern of economic integration with the world that two centuries of exploitative colonialism had engendered. However, in the process, it ended up effectively locking itself out of global trade and investment flows altogether—just at the time when advanced countries were tearing down their mercantilist tariff walls to make way for the liberal, post-war trading order.
