LONDON, Oct 6 (Reuters) – Crazy or brave? That might be the most logical thought if anybody told you now was a good time to invest in commodities, given the sharp declines in the main indexes in the past few months.
But that’s exactly what the overwhelming majority of fund managers and bankers were advocating at last week’s World Commodities Week conference in London.
Their optimism was in contrast to the clutch of analysts who presented at the meeting, who generally reinforced the current bearish theme by pointing to softness in demand in top importer China, as well as plentiful supply for many commodities.
The fund managers and bankers do have more than just blind optimism (and a desire for fresh funds to manage), and can point to a raft of reasons why they believe prices are near a bottom.
But the question remains as to who has the most compelling argument, and whether institutional and other major investors are prepared to buy into an asset class that most would view as having a disappointing recent track record.
While commodities had a good start to the year, outperforming equities, they have since struggled, with the Bloomberg Commodity Index down 13.2 percent from its 2014 peak in late April, and the S&P GSCI 14.9 percent weaker from its June high.
Much of the weakness has been because oil prices fell, after gaining on geopolitical fears related to Iraq and Ukraine, while metals and bulks suffered as China’s economic growth outlook wobbled and certain agricultural commodities weakened in the light of higher expected production.
The problem for any bullish outlook is that the above reasons are pretty much still in force.
MORE THAN GUT FEEL
So what are the reasons to expect improved performance is around the corner?
Other than a gut feel that prices have fallen enough, the most cited argument at the conference was that the so-called commodity supercycle remains in place, and the long-term growth case remains compelling even if the market is currently in a bear phase.
For the rest of this column, click here: http://uk.reuters.com/article/2014/10/06/column-russell-commodities-investment-idUKL3N0RY2Y420141006