InvestmentNews INsider

The INsiderblog

InvestmentNews reporters offer their take on intriguing or controversial articles from around the web.

INsider: Wheels about to come off commodity super-cycle

Surpluses and a slowdown in China have one analyst calling an end to raw materials boom

Nov 20, 2012 @ 2:57 pm

By Jason Kephart

The commodity super-cycle is on track to hit a major speed bump next year — if it hasn't already.

Surpluses across a variety of commodities and a consumption slowdown in China have Edward Morse, global head of commodities research at Citigroup Global Markets Inc., arguing that investors need to change the way they invest in the asset class.

“It is now clear the commodity super-cycle is over. No longer will a pure long-only strategy bring the returns expected in 2002 to 2008, nor will conditions approximating those of the last decade return anytime soon,” Mr. Morse wrote in a research note sent to clients Monday.

He expects surpluses, like the one in U.S. natural gas, to become the norm across most commodities as demand slows along with the global economy.

Even when demand picks up, which Mr. Morse expects by the end of next year, the performance of various commodities is likely to be more differentiated than in the past.

The biggest impact to long-only commodity investing is going to be in China. The country's economic growth will shift from being raw materials intensive, with an emphasis on building out infrastructure, to relying on household consumption, he according to Mr. Morse.

“The overall slowing and the restructuring of the Chinese growth model should mark a watershed in global commodity markets, if only because China had played such an outsized role in global commodity markets in the past decade,” he wrote. “For many industrial metals, China, in fact, was responsible for all of net global demand growth after 1995 and also is one of the largest global consumers of energy, grain, and soft commodities.”

Some investors have already begun dialing back their long-only commodity exposure.

Money managers have cut holdings of net-long commodity positions by 38% since Oct. 2, according to Bloomberg.

On the fund side, more than $1 billion has exited broad-based commodity mutual funds over the past six months, according to Morningstar Inc. Flows were positive in only two of those months, and neither month saw more than $75 million of net new investment.

0
Comments

What do you think?

View comments

Recommended for you

Related stories

Featured video

INTV

Behind the scenes of InvestmentNews' Best Places to Work

Benefits and vacation policies are important for hiring top talent, but giving employees a sense of ownership in decision-making is among the most important qualities, editor Fred Gabriel says.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Pope Francis wants financial advisers to work like fiduciaries

Vatican bulletin admonishes advisers who act against the best interests of their clients.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print