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
By  JKEPHART
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.

Latest News

Analyst: LPL may spend up to $800 million annually to buy advisors' businesses
Analyst: LPL may spend up to $800 million annually to buy advisors' businesses

LPL has closed 56 deals in its succession program, using $690 million of capital, according to William Blair analyst Jeff Schmitt.

President Trump's big bill sparks strategic shifts among wealth advisors
President Trump's big bill sparks strategic shifts among wealth advisors

"We are making sure to pivot away from companies disproportionately exposed to the lower-end consumer," says F.L.Putnam's Ellen Hazen, as her RIA's investment strategy prepares to react to proposed cuts to medicaid and SNAP.

Trump could be open to SALT cap changes
Trump could be open to SALT cap changes

President tries to find compromise to get bill through.

Canadian lender BMO shakes up executive bench amid US business revamp
Canadian lender BMO shakes up executive bench amid US business revamp

Toronto-based Bank of Montreal has hired a three-decade veteran from Bank of America to lead its newly combined US operation as one of its top leaders plans to step down.

How pe-backed buyers are reshaping wealth management's future
How pe-backed buyers are reshaping wealth management's future

The smartest sellers are prioritizing integration support, not just payout multiples, says industry head.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave

SPONSORED The evolution of private credit

From direct lending to asset-based finance to commercial real estate debt.