The trouble with China
There has been considerable debate about a hard landing for China, says Bjarne Scheildrop, head of commodities at SEB.
“If you look at the performance of equity markets – the S&P 500 and Eurostoxx against the Shanghai – the equity bears have been vindicated. Equities are at 2009 Q1 levels, whereas the S&P is at pre-crisis levels.
“Doomsayers say a hard landing is unavoidable for China despite a period of investment by the Chinese government with the official figure at about $586bn (around ¥4trn). It is hard to invest wisely in such a short time (2009–2010) and we will see whether the first investors will see the results of bad investment.” Most metals with the exception of copper are trading around 20% below sensible prices, taking just marginal costs and operating costs, says Scheildrop. “China has come to a turning point in terms of growth. It experienced massive growth for two decades but will change how it develops. It will continue to need a lot of commodities, but perhaps not as much as before though demand for steel and other metals will grow strongly.”
The trouble with commodities is there is always a lag between investment and new capacity and the supply side has struggled to match the demand side and so commodity markets are likely to rebound over the medium term.
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