Super Sunset -
Cycle
Downbeat on China? Fed up with Eurozone tinkering? Think the US recovery is over-baked? Then commodities – or indeed any other asset class (bar bullion) – are not for you.
By Guy Isherwood
DON’T PANIC. THE commodity super-cycle is not about to collapse ... it’s just come to an end in many parts of the complex. Many have foreseen a slow decline in commodity prices and the sharpening differentiation among commodities, rather than a sudden collapse as commodity returns take divergent paths; hence our continued recommendation to actively select and manage exposures amid heightened macro risks. As Barclays Capital recently explained, “In what appears an
all too familiar repeat of recent history, the macro-economic factors that have contributed most toward commodity price weakness over the past two years – European sovereign debt worries and fears of a hard landing in China – have returned to haunt markets.” Certainly true. But many now believe there is something more fundamental going on out there. Perhaps this more than decade-long cycle has peaked: the end of the latest phase in a cycle that has historical resonance with professionals in this space.
... the macro-economic factors that have
contributed most toward commodity price weakness over the past two years ... have returned to haunt markets
At Citigroup Global Markets, the metals team argued
earlier this year that we were at the “sunset of the commodity super-cycle.” At the same time, their oil team, writing in Energy 2020: North America, The New Middle East? said that the supply and demand response in the US was likely to cap oil prices and start to drive them down. So much is true. Commodities Now (and others) have been explaining
for some time why commodity prices will no longer rise uniformly, and accordingly, to take appropriate investment action. And with some market experts expecting a long slow decline (in real terms) for future years – inevitably punctuated by disruptions and higher prices – many investors we are in contact with suggest that they will hold or more likely cut their exposures to the natural resource markets (in whatever form). Now, while this was not a scientific survey (and one where many are likely to volte face as sentiment oscillates in this
4 June 2012
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