While at T&T Capital Management we are of the mindset that China is likely to experience a considerably rougher landing than the consensus opinion, this article nicely articulates some of the problems that particular commodity exporters might endure. Companies like BHP, RIO, and RTP, are not going to have same seemingly inexhaustible demand that has been a hallmark of the emerging market expansion. Commodity exporters have experienced a decade of high prices which have bolstered profits but the good times can’t last forever. New technologies such as “fracking” are having revolutionary consequences for certain commodities such as Natural Gas. So much of China’s expansion has been built upon construction requiring hard materials such as iron and copper. Even if China’s economy doesn’t slow down too hard, our research tells us that the cyclical demand in construction is not likely to continue at nearly the same pace, and at some point prices need to reflect that.
INVESTING IN THE FINANCIAL MARKETS INVOLVES RISKS. OPTIONS ARE NOT SUITABLE FOR ALL INVESTORS.