Emerging-Market Stocks to Drop as China Commodity Demand Slows, Mowat Says

Emerging markets may extend this year’s declines as China cuts dependence on fixed-asset investment, lowering demand for commodities, according to JPMorgan Chase & Co.’s Adrian Mowat.

“We’re going to get a further correction,” Mowat, chief Asian strategist at JPMorgan, said in a Bloomberg Television interview today. “What we expect to happen is bulk commodity demand is going to weaken as China rebalances away from building lots of infrastructure and real estate towards consumption.”

The 756-stock MSCI Emerging Markets Index may fall 8.8 percent from current levels to 840, said Hong Kong-based Mowat, who’s ranked third for Asian equity strategy in Institutional Investor’s annual survey. Mowat’s forecast contrasts with investor Antoine van Agtmael, who said yesterday developing- nation stocks are probably “past the worst point” for the year.

The developing-nation gauge has declined 7.6 percent in 2010 on concern widening fiscal deficits in Europe and China’s property-market curbs will slow global growth.

China’s stocks have led regional declines. The benchmark Shanghai Composite Index is down 22 percent this year, trailing only Greece, Cyprus and Spain among the 93 global stock gauges tracked by Bloomberg.

A measure of six metals traded on the London Metal Exchange, which includes copper, aluminum and nickel, has retreated 11 percent this year.

Commodity Prices

Further declines in bulk commodity prices could lead to “another down leg” in emerging markets as countries such as Brazil, Russia and Indonesia depend on raw-material production, said Mowat.

Van Agtmael, who coined the term “emerging markets” in 1981, said in a Bloomberg Television interview the global economy will avoid slipping back into recession.

The current slowdown in China is also “expected,” given the pace of recovery and efforts to curb overheating in the property market, he said. China’s purchasing managers’ index released this week showed manufacturing expanded at a slower pace than estimated in May, adding to concern that the world’s third-largest economy may decelerate.

China has raised reserve requirements for banks, increased mortgage rates and barred loans for purchases of multiple homes to curb property prices, which rose a record 12.8 percent in April.

Real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70 percent from April, Shanghai Securities reported this week, citing data from a local property website, a property agent and the government.

“We see countless policies designed to slow down the property market and to slow down fixed-asset investment,” said Mowat. This shift towards a consumption-driven economy is “rather bad news for commodities, he said.

--Chua Kong Ho, Susan Li. With assistance from Melody Fu. Editors: Allen Wan, Reinie Booysen

To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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