China May Burst Commodity, Emerging-Market Stocks Bubble: Chart of the Day

Emerging-market stocks and commodities are in a bubble that will deflate as China’s economic expansion slows, according to Albert Edwards, a strategist at Societe Generale.

The CHART OF THE DAY shows what may lie ahead by tracking year-over-year percentage changes in a Chinese leading economic indicator, compiled by the Organization for Economic Cooperation and Development. The chart also includes MSCI’s Emerging Markets Index and the Continuous Commodity Index, a gauge that used to be the Commodity Research Bureau Index.

For 10 straight months, the OECD’s index has risen at a slower rate. The indicator stood at 9.8 percent in September, the latest month available, after peaking at 26.9 percent in November 2009.

“Commodity and emerging-market bulls ignore the weak Chinese leading indicator at their peril,” Edwards wrote in a report today.

September’s reading was comparable to the level in June 2008, as the chart shows. Back then, emerging-market stocks were starting to tumble and commodity prices were peaking. History is likely to repeat itself, the report said.

“We are witnessing a bubble of epic proportions which will burst,” Edwards wrote. He added that investors are likely to be caught unaware by this collapse, as they were when a mid-1990s surge in Asian stocks gave way to a plunge.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at

To contact the editor responsible for this story: James Greiff at

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.