by BCA Research
Financial Sense
With their Reflation Confirming Indicator rolling over, our EM strategists believe that it is only a matter of time until EM equities follow.
[…] The Reflation Confirming Indicator is an equally weighted aggregate of platinum prices (a proxy for global reflation), industrial metals prices (a proxy for China growth) and US lumber prices (a proxy for US reflation). A downturn in this indicator suggests that global reflation may subside and that demand for commodities could follow soon after. Falling commodity prices will spell trouble for EM economies and risk assets.
EM equities decoupled from our Reflation Confirmation Indicator in early 2015. Ultimately, the gap was closed by EM equities breaking lower. Continued weakness in our reflation gauge will indicate downside risks for EM assets.