Com­modi­ties zoom from no-go to all-clear zone

China Daily (Canada) - - HONG KONG -

Com­modi­ties have been a no-go zone for global in­vestors for the past few years. They were right. The prices of a wide range of met­als and other com­modi­ties were in free fall as de­mand from de­vel­oped economies and the Chi­nese main­land con­tracted at an alarm­ing rate.

This may be chang­ing. Al­though the global eco­nomic out­look re­mains murky at best, com­mod­ity prices have been ris­ing in re­cent months, largely be­cause in­dus­tries have seen the need to re­plen­ish their de­pleted stocks of raw ma­te­ri­als, in­clud­ing iron, cop­per, alu­minum and zinc.

Iron ore was trad­ing at around $64 a ton — the high­est since June 2015 and up from about $38 in De­cem­ber. The price of cop­per has gone up nearly 7 per­cent so far this year, while that of alu­minum is up by more than 5 per­cent.

In­vest­ment an­a­lysts can­not agree if the trend will con­tinue for long. But the re­source sec­tors in the Hong Kong and main­land stock mar­kets were mak­ing a strong come­back last week, out­per­form­ing the main in­di­ca­tors.

In­ter­est rates also play an important role in in­flu­enc­ing com­mod­ity prices. The US Fed­eral Re­serve has sent out sig­nals that have been widely in­ter­preted as in­di­cat­ing that rates will not be raised in the sec­ond quar­ter of this year. The re­sult is a weak­en­ing US dol­lar against most other ma­jor world cur­ren­cies. This has the ef­fect of push­ing up US dol­lar prices of most com­modi­ties.

An­other bullish fac­tor for com­modi­ties is the per­cep­tion, based on the lat­est set of of­fi­cial fig­ures, that the down­ward pres­sure on the Chi­nese main­land econ­omy is eas­ing. More important is that lower-than-ex­pected in­fla­tion gives room for the gov­ern­ment to step up its mone­tary eas­ing pol­icy to help sta­bi­lize the econ­omy.

To most in­vestors, though, pick­ing stocks in the un­fa­mil­iar re­source sec­tor may present some risks. One al­ter­na­tive is to in­vest in the com­mod­ity-ex­port­ing emerg­ing mar­kets, in­clud­ing Mex­ico, Brazil and South Africa, ei­ther di­rectly or through mu­tual funds. The MSCI in­dex that tracks emerg­ing mar­kets has risen 6.5 per­cent since the be­gin­ning of this year.

Fur­ther­more, emerg­ing mar­ket stocks, val­ued at an av­er­age mul­ti­ple of 12 times, are cheaper than those in Hong Kong or on the main­land. If you are game, this is the time.

One bullish fac­tor boost­ing com­modi­ties is the per­cep­tion that the down­ward pres­sure on the Chi­nese main­land econ­omy is eas­ing, based on of­fi­cial data.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.