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Copper-bottomed metals?

Metals producers, on the other hand, cannot be described as ‘nimble’ because of the long lead time of their past investments and their low marginal costs. Moreover, steel (and so iron ore) and copper are highly dependent on the Chinese construction sector. A repositioning of the Chinese economy away from exports and housing investment towards goods and services consumption would not provide a huge uplift to demand for these materials, so price rises are likely to be at best moderate.

Analysts seem more optimistic about other areas of the metals complex – aluminium, zinc, lead, nickel, palladium and platinum. The likely improvement in global activity, particularly in the manufacturing sector, and the potential for stronger capital expenditure in Europe (and potentially the US) are supporting demand for these commodities. Gold, on the other hand, is likely to be under pressure from a stronger US dollar. Gold acted as a safe haven for investors when the dollar was under pressure from quantitative easing in the US, but this source of demand for gold looks to be behind us.

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Which emerging market countries and bond issuers are likely to benefit in this scenario?

Not all emerging issuers will be affected to the same extent by the stabilisation in commodities prices.

For energy producers, we believe that countries with strong balance sheets should benefit most from the stabilisation of oil prices. Among those, for which energy accounts for more than 50 per cent of exports, I am more comfortable with countries whose debt-to-GDP ratios remain at or below 30 per cent and whose budget deficits are constrained. Kuwait, Azerbaijan, Kazakhstan, Russia and Colombia are among these countries. Indonesia, for which oil accounts for more than 30 per cent of its total exports, should also benefit.

On the other hand, Venezuela, where costs of production remain high, and Iraq, whose production is completely disrupted, are two weak sovereign issuers that are unlikely to see any improvement in the near term at current oil prices.

For ore and metals, it is important to consider which commodity is the main source of revenue in each country.

Copper is the primary source of metals exports for Zambia and Chile, while Mongolia also exports copper as well as iron ore. This means that these three countries thus remain in large part dependent on a rebound in the Chinese construction and housing sectors.

The energy and metals sectors account for around 30 per cent of the emerging market corporate and quasi-sovereign bond universe. Based on these views of future commodities prices, I am positive about the oil and gas sector, but more cautious towards metals and mining.