When it comes to commentary on China growth, what a difference a year makes. Last year the emerging economies, led by China, would continue to drive global economic growth. This growth, according to forecasts, would continue unimpeded even in the face of a stagnant U.S. economy and a pronounced slowdown in Europe. This uninterrupted growth outlook segued well with the “supercycle” commodity story. Flash forward to today and we are inundated with China slowdown stories amidst the same stagnant global backdrop. The “supercycle” story has been completely discounted (as it should) and forecasters keep ratcheting down emerging market growth rates by the week.
The question becomes:How does an investor in commodities navigate these highly volatile times, particularly when the world’s largest marginal buyer is clearly slowing. The answer is: Look to those particular areas of the commodity world where the excesses tied to the China story were held to a minimum. In other words, avoid iron ore or anything else related to the global steel business and look to sectors like platinum where relatively low prices over the last 18 months have set the stage for something substantially better in the intermediate term.