What the IMF and Copper Say About the Global Recovery

Brian Rezny submits: What goes up…must come down…at least a little. Copper hit a 27-month high last week, then proceeded to pare back its gains by falling the most in 11 weeks. The decline was understandable given the steep price momentum last week.Still, in spite of giving back some gains, copper has potential to rally further. Lower mine productivity means supply constraints, which in turn means “prices should remain tilted toward the upside”, according to the International Monetary Fund. But another factor on price is demand…and that is coming from emerging markets. China is the world’s largest copper consumer (accounting for 35%), and along with Brazil and India, can easily absorb future copper production (Europe, Japan and the U.S. combined account for 30% of copper consumption). Case in point: China’s copper consumption is projected to grow 14% this year, according to the China Daily. Copper is a fairly solid gauge of the demand for industrial metals (because it is not easily substituted), and it is telling us one thing: the global recovery is being driven by emerging markets.Just ask the IMF. According to the latest World Economic Outlook, the world economy is forecast to grow 4.8% this year, and that growth will be led by emerging markets. The recovery is “fragile and uneven”, with advanced economies expected to grow 2.7% this year…while emerging markets will expand 7.1%. And what’s really telling: as many as 210 million people are jobless globally – that’s 30 million more than before the recession. And ¾ of the jobless increase is in advanced economies. (Click to enlarge)Source: International Monetary FundAnd the real problem: “the key policy challenge is to effect a smooth transition from public to private sector-led growth in many advanced economies”. Given the probability of further stimulus action from the Fed, we are not even moving toward that transition.According to IMF chief economist Oliver Blanchard, “the world economic recovery is proceeding…but it is an unbalanced recovery, sluggish in advanced countries, much stronger in emerging and developing countries”. For investment exposure to growth in emerging markets, take a look at WisdomTree Emerging Mkts SmallCap Div (DGS): this ETF holds investments in dividend-paying small cap stocks in emerging markets. As Morningstar points out, this fund is centered on consumer and industrial sectors, which leave it poised to capture growth. And because the fund invests in small cap companies that rely on local revenue, it has less exposure to fluctuations in the dollar.Disclosure: Author holds DGSComplete Story »