Why has the gap between the S&P 500 and commodity prices widened?

According to Katusa Research, commodity prices have fallen to a 47-year low when compared to the S&P 500. Much of this could be explained by a rise in the efficiency of mining, enabling some S&P 500 firms to increase their margins while driving commodity prices lower. That’s good for stock investors – and good for the consumer.

The question now is whether this trend can continue, or if the markets are about to turn. The answer could depend on China.

To what extent has China’s growth affected global commodity prices?

It seems that China has effectively sponsored the extraction of commodities and conversion of ores, with companies benefitting from cheap debt, labour and electricity over the last few years. This may have kept prices lower than they could have been over the last five years.

But with China now on an anti-pollution drive, is the era of state-funded production coming to an end? If so, it could have consequences for vanadium, titanium, copper, zinc, nickel and other commodities.

What effect will changes in South Africa have on commodity markets?

Cyril Ramaphosa, the former general secretary of the National Union of Mineworkers, and current deputy president of South Africa, was recently appointed president of the African National Congress (ANC). That could have a big impact on South Africa’s commodities industry, and Jacob Zuma’s tenure as president.

With the rand (ZAR) already on the rise against the US dollar (USD), it seems possible that Ramaphosa – not known to be corrupt – could usher in a period of great change. But when should we expect this to happen?

What effect should the recent rise of the rand (ZAR) against the US dollar (USD) have on producers and prices?

In the short term, the rise in the rand could serve to pull back the value of dollar earnings and earnings in other currencies. However, it could bring longer term benefits, some of which have the potential to make for a much more business friendly environment.

The question really is not when change is coming, but how quickly it will arrive. It could all depend on how quickly the ANC can reform itself.

What are the best commodities and stocks to watch in 2018?

Watch the video above to discover John’s top commodity and share picks for 2018, as he explores the potential effects of advances in battery technology and President Donald Trump’s infrastructure reforms on the markets.

• [Editor:Wang Linyan]