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Can The Firm Trend In Industrial Commodities Levitate EM Equities To New All-Time Highs?

  • Since the start of the year, we have seen that a rise in the USD amid elevated uncertainty and the divergence in growth expectations between US and the EM economies (where vaccination rate has been 'low') has been one of the major risks for EM equities.
  • After peaking in February (which also corresponds to the peak in Chinese economy), EM equities have been trending lower in the past 8 months, constantly reaching lower highs.
  • On the other hand, the elevated inflationary pressures have been supporting commodities, with the CRB RIND Index recently trading at new all-time highs.
  • This chart shows a strong co-movement between raw industrial commodities (CRB RIND Index) and EM equities (MXEF Index), and investors have been questioning if the divergence we have seen in recent months could continue in the medium term.
  • Hence, can the firm trend in commodities support EM equities despite appreciating US Dollar?

Source: Bloomberg/MNI

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