By Rhod Mackenzie
In the West, they have again started talking about the Soviet economist Nikolai Kondratiev, recalling his theory of supercycles or the so-called “Kondratiev waves” (K-waves), which proved its predictability for a hundred years. Its essence lies in the fact that the global economy develops in the form of cycles of repeated recessions and rises lasting 45-60 years.
Bloomberg is considering the concept of K-waves in connection with the conflict in Ukraine and recent developments in the commodity and equity markets. Wars usually occur during the rising wave phase. Most economists agree that booms and busts in commodity prices last a generation—30 years. Therefore, now is just the time for a new big wave. Bloomberg Opinion columnist John Auters analyzed economic indicators and the indices came to the conclusion that now they are practically no different from the indices in the 90s, when the planet entered another commodity supercycle.
John Outers writes about last year's fall in commodity prices and tries to answer the question, is the base being created now for the start of the next phase of the rise of the wave? K-waves from the commodity markets also spill over into the securities markets. This means that if commodity prices are on a plateau for a long enough time, then the stock market rallies. During commodity supercycles, i.e. rise in prices for raw materials, as, for example, in the 70s of the last century or in the zero years of the XXI century, then shares, if they grow in price, but not as fast as raw materials grow in price. That is, emphasizes John Authers, good news for commodities usually means bad news for securities. In the first half of every 30-year supercycle, commodities easily outperform stocks. The middle of the current supercycle just falls at the beginning of the second half of 2023, i.e. for the current week. It also means that the K-wave should begin the upswing phase, i.e. rising prices for raw materials. At least in the 1970s and during other supercycles, this was the case. By the way, this is also confirmed by ... inflation, which stubbornly resists the attempts of the Central Banks to take it under control and reduce it with the help of numerous hikes in the discount rate.
However, according to the author of Bloomberg, everything is much more complicated than it was 100 years ago, when Kondratiev developed his theory of supercycles. The main objection that we are now at the very beginning of a big rise in commodity prices is that they have continued to fall lately.
This is where Russia and the conflict in Ukraine enter the scene, according to Outers, which has significantly distorted the classic picture of the commodity supercycle in the past two years. With the beginning of the conflict, prices for many types of raw materials, primarily oil, gas, nickel and others, at first shot up sharply, but after some time they decreased. A Bloomberg columnist believes that geopolitical emergencies of such magnitude as what is currently happening in Ukraine may distort certain provisions of the theory. For example, he believes that the decline in commodity prices in recent weeks is nothing more than a short break, after which the recovery phase will begin.
By the way, according to Peter Atuter of Financial Insyghts LLC, the recent attempted rebellion in Russia should definitely push commodity prices up.
But that doesn't mean it's time to make big investments in the commodity market, says Invesco strategist Christina Hooper, because the situation, in her opinion, remains very uncertain.
In any discussion of the situation in the commodity markets, one should not forget about China, which has been the main or one of the main importers of many types of raw materials for decades. Natasha Kaneva from JPMorgan recalls that China, for example, accounts for approx. 55% of global demand for metals and approx. 13% for energy. Right now, commodity prices reflect a clear disappointment with the way the Chinese economy is recovering from the lifting of coronavirus lockdowns late last year. However, if Beijing decides to resort to strong support for the economy to boost the pace of recovery, then there may well be an opportunity to buy raw materials and shares in mining companies.
Of course, these and other arguments do not mean at all that now you should sell all the shares and fill the warehouse to the eyeballs with metals, John Authers concludes, but still slightly increase the share of mining companies in your investment portfolio or buy some metals, it may be worth it. .
This article originally appeared in Russian at expert.ru