Dear Reader,
The world’s best performing stock market is about to crash. But as I’ll explain, the cause of that crash will also give you the chance to make good money in one simple investment.
Markets everywhere have been rallying hard. On Wall Street, they’ve had their sharpest rise since the 1930’s.
China’s market has risen by a staggering 67% since the start of the year. It has had an incredible run, but it hasn’t been the top performer. For that you need to cross the Pacific to Latin America.
Peru’s stock market has powered ahead by a mind-blowing 103% this year. Investors who piled into this exotic market have made an absolute packet.
But most British investors aren’t going to be invested in Peru, so you may wonder why I am even talking about it today. Simple. You see, I believe that Peru’s market is set to for a dramatic crash.
And the reasons for that also give us two powerful investment signals. It shows us that it is time to get out of one popular investment. And it shows us why it is time to get into another entirely off-the-beaten track commodity play. Let me explain.
Time to get out of copper
Peru’s share market has taken-off like a rocket because of rising commodity prices – especially copper. The country is the world’s second biggest copper producer. And copper prices have risen by 99.5% since the start of the year. You can see how dramatic this jump has been in the graph below:
Copper prices have shot-up because China has been buying huge amounts of the red metal. They’ve been taking advantage of the sharp fall in copper prices last year to build up huge reserves. Demand in China has risen because of its huge economic stimulus programme. The government has been splurging on new highways, airports and other public works in order to keep its economy growing at a high rate.
That massive run-up in the copper price has made it a popular investment this year. And it has obviously done wonders for the share prices of many copper miners. But the latest data shows that the copper is now piling-up in China’s warehouses faster than they can use. In other words, they’ve now got more than enough of the stuff.
The price of copper and of copper companies like Rio Tinto(ticker:RIO), Antofagasta (ANTO) and Freeport McMoRan (FCX: US), and are probably set to take a beating once China cuts back on buying. These stocks have done well this year, up 95%, 70% and 170% respectively.
But if like many investors you are invested in copper right now, this is a good time to cash out before the market corrects, taking these stocks down with it.
There’s a better commodity to invest in right now.
Time to get into agriculture
Peru has got much more to worry about than just China though. As a reader of The Right Side, you will know about the El Niño weather phenomenon that is developing. That could have a devastating effect on the Peruvian economy.
The last major El Niño in 1997 wreaked absolute havoc on Peru’s economy the following year. It brought torrential rains that flooded the country’s mines and damaged crop production. That had a dramatic impact on Peru’s economy. It had grown by almost 7% in 1997. But in 1998 it actually shrank by 0.7%. It could have a similar affect again this time.
El Niño is already causing havoc with the weather in Latin America. Parts of Brazil have already received four times the normal amount of rain. That’s ruined a good part of its agricultural production and made it difficult for farmers to harvest what’s left.
But the El Niño is just beginning and the chances of Peru getting away unscathed are practically zero. The country’s share market could be about to become a death trap for investors slow to get out.
El Niño’s arrival is bad news for anyone invested in Peru. But it is brilliant news for anyone invested in the right commodities. Agricultural prices are probably going to see big gains. Because the harder El Niño hits crop production, the higher their prices should go.
As I have said here in The Right Side before, coffee is definitely one to watch. A huge part of its production is concentrated in Latin America and could be vulnerable to weather disruptions. A simple way for betting on that is through the London-listed ETFS Coffee Fund (ticker: COFF).
But I have put together a new report on the one crop that is set to see the biggest price gains as El Niño hits. You can get that report here.
Good investing,
Manraaj Singh
For The Right Side
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