The recent breakdown in industrial metals prices in general and copper in particular is heralding more downside in EM risk assets.
Historically, EM share prices have been tightly correlated with commodity prices in general and industrial metals prices in particular. The reason is that all of them correlate with global growth, especially EM economic conditions.
While a rise in commodities supply is certainly a major factor behind the commodities price deflation, global commodities demand is weakening as well.
We see no reason for the correlation between commodity prices and EM risk assets to change.
Our country allocation in the EM space has been positioned for a broad-based decline in commodity prices and our EM team maintains their stance: equity overweights are Taiwan, China, Korean technology and domestic stocks, Malaysia, Poland, the Czech Republic and Mexico. EM equity underweights remain Brazil, Colombia, Indonesia, Turkey, South Africa and Thailand as well as Korean autos, materials and industrials.