Commodity correction looming, emerging markets tethered to the western slowdown

Expect a significant correction in commodity prices by year-end, warns Sailesh Jha, MD, Asia macro strategy & sales at Jefferies. He speaks to CNBC's Karen Tso and Sri Jegarajah about why a moderation in resource prices is not a bad thing.

On similar themes, Paul McCauley of Pimco wrote yesterday:

“As strong as many of the emerging markets are, they are still tethered to the developed markets by strong global trade linkages. A greater-than-expected fall in developed countries’ current account deficits, notably in the U.S., would be a daunting challenge for the emerging market sector.”

And as for China decoupling from the west and pulling the world economy forward, McCauley reminds us of reality:

“Policy efforts to limit overheating and asset price bubbles in China have proven mostly effective, though that is no guarantee of future success. Public investment in infrastructure is key to driving China’s growth, but over the longer term, income must be shifted from state-owned enterprises to the household sectors: Wages need to rise more in line with the nation’s productivity growth. Social safety nets need to be dramatically enhanced to reduce households’ need to self-insure via super-high savings rates. China has both the ability and the will to pursue these developments over the longer term. That said, over the cyclical horizon, China’s path is unlikely to sufficiently fill the hole in global aggregate demand. “