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____ Friday October 16, 2015 ____

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Chart of the Week

Opex vs Capex

Kitchener - The chart below shows the changing structure of China's voracious commodity demand. Notice the commodities at the top. They are what Goldman refers to as Opex (Operational) Commodities. They are "operating" commodities; commodities consumers use/consume in their everyday lives for heat or transportation or food. The demand for these is growing dramatically as China shifts to a "consumer driven" model much like we in the West are now.

Chart courtesy of Goldman Sachs

This is at the expense of Capex (Capital) Commodities. These are the commodities generally used for "fixed investment" i.e. building things with steel and cement. As the building boom starts to slow it looks like the consumption boom is starting to take hold. If this is true, this should be positive for us here in Canada as we are exporters of a lot of the "Opex" Commodities. This could lead to a sustainable bottom in the resource sector here in Canada and should bode well for a strengthening Canadian $. Maybe, just maybe, you should hold off buying your USD for your trip South this winter for a little bit longer! Food for thought!

Mike Hayhoe, BSc, CIM® Branch Manager & Senior Investment Advisor | Independent Wealth Management Canaccord Genuity Wealth Management

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