There is a close linkage between emerging markets and commodity prices. This connection becomes stronger for net commodity exporters. The two most notable examples are Russia and Brazil, both of which are commodity and energy exporters. These two countries have been two of the hardest hit among emerging markets.
These markets have historically moved with commodity prices. When commodities fall, exporters of commodities make less money which is bad for their economy. In many cases, the movement of these markets helps to give clues to future moves in commodities.
As we can see in the chart above, Russian (in black) and Brazilian (in orange) stock markets have been in bearish mode since 2011. Both, however, rallied this year but we can see that the rally is falling short of their previous peaks. The recent drop also coincided with falling commodity prices worldwide since April.
What This Mean For Metal Buyers
Weakness in emerging markets validates weakness in commodity prices. The dollar is still strong while commodities and emerging markets fall. It’s hard to become bullish on commodities until we start seeing some divergences.