Copper uptrend supports an EM bull case, barring one risk factor

There are leading indicators and then there’s copper, the metal endowed with an ability to predict economic conditions. Morgan Stanley believes that the red metal also enjoys a good relationship with long term equity returns in Emerging Markets, especially when it is looking for a ‘growth inflexion’.

That’s one of the reasons why the investment bank is bullish on EM equities. Copper prices are at their highest levels since June 2018. Supply disruptions are a factor but its analysts also expect demand to improve and are therefore forecasting a further upside to copper by end-2019. Chiefly, China’s demand is expected to improve from the second quarter. If the traditional link between rising copper prices and EM equities is maintained, then that’s one more reason to be bullish.Copper price versus EM Equities

But remember, there’s China in this equation. A Reuters report said that China’s trade data showed that the country lowered its copper imports in February, while concentrate imports surged, indicating the country was producing more metal. China’s government has also predicted slower economic growth in 2019.
While Dr Copper may be signalling an EM uptrend, watch for data from China in the next few months. If it’s not supporting a demand revival scenario, then the diagnosis could change.

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