Material difficulties

FIVE years ago, two views were fairly common. The future belonged not to the sluggish, ageing advanced economies but to the emerging markets. Furthermore, those economies had such demand for raw materials that a “commodity supercycle” was well under way and would last for years.

Commodity prices peaked in 2011, and have been heading remorselessly downwards ever since. Their decline of more than 40% so far is a huge bear market; had it happened in equities, the talk would be of calamity and collapse.

News coverage in the Western media tends to view the decline in commodity prices as a benign phenomenon, as indeed it is for countries that are net importers. But it is not good for commodity exporters, many of which are emerging markets. That helps explain why emerging-market equities have had only one positive year since 2011, and have underperformed their rich-country counterparts by a significant margin in recent years (see chart). The latest sign of trouble came in China, where the Shanghai Composite fell by 8.5% on July 27th.

The growth rate of emerging economies is likely to slow in 2015 for the fifth...

via The Economist: Finance and economics Business Feeds

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