JPMorgan says be ready for 40% commodities rally in market shift

Commodities could surge by as much 40% — taking them far into record territory — should investors boost their allocation to raw materials at a time of rising inflation, according to JPMorgan Chase & Co.

While allocations appear to be above historical averages on commodities, they are not very overweight, according to strategists led by Nikolaos Panigirtzoglou. That suggests scope for gains in raw materials, they said.

Commodities soared to a record last month as Russia’s invasion of Ukraine roiled markets, boosting the prices of everything from oil to wheat. That’s helped to spur already-elevated global inflation and a tougher response from the Federal Reserve, prompting investors to weigh reshuffling the weighting of assets between stocks, bonds and raw materials in their portfolios.

“In the current juncture, where the need for inflation hedges is more elevated, it is conceivable to see longer-term commodity allocations eventually rising above 1% of total financial assets globally, surpassing the previous highs,” the JPMorgan strategists wrote in an April 6 note. All else being equal, that “would imply another 30% to 40% upside for commodities from here,” they said.

Commodities have rallied across the board this year, with gains in energy, metals and crops. Among the gainers, Brent crude — the global oil benchmark — has surged more than 30% and hit the highest level since 2008 last month.

Among leading banks, Goldman Sachs Group Inc. has also been consistently bullish on raw materials, in part on their role as an inflation hedge. Goldman warned in an April 7 note that a global copper shock was under way.