FOCUS ON COMMODITIES - BOOM OR BUST?
At the bottom of this page are the four most popular funds, which will also link you through to details on our view of the fund, the performance, and charges.
Commodities are very significant for emerging stock markets, as energy and commodity companies account for more than 25% of their total value, and it is far higher in some markets than others, for example 75% in Russia and 55% in Brazil, whereas in India it represents just 22%.
But should you be buying now? Past experience of commodity booms is that they are followed by vicious "busts", and the best time to buy is usually when they are down and out and unloved, which is clearly not the case now. So should you be buying now, or selling? Any shorter term bull run, such as have just been enjoyed, must be put in the context of the longer term downtrend in commodity prices - in real terms prices are less than one-half what they were in the mid 19th century. The chart below shows this trend since 1982, and suggests that we have just encountered nothing more than a short term upswing, however spectacular that might seem on a 3 year view.
Commodities: in spite of the strong rally, prices remain well below historic highs
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The argument of the optimists is that the depressing long term tend to 2002 has turned around, and the last 3-4 years (when oil and metal prices have tripled) are only the beginning of new bullish “super cycle”, as there will be continuing high demand, with emerging markets in the vanguard.
Taking oil as an example, oil prices may not fall far from current levels, partly due to the huge potential demand, and partly because of the long lead time to supply more oil. On demand, there are only two cars for every 100 people in China, contrasting sharply with 50 per 100 in the US. Goldman Sachs reckon that by 2040 the total number of cars in China and India will rise to 750m, more than all the cars in the world today.
Not all analysts agree with this positive view, and highlight the potential for increasing supply (and falling prices), as there are huge reserves of most metals, and higher prices are encouraging producers to get more out of the ground. Spending on exploration has certainly soared in the last couple of years.
Commodities are very wide-ranging. It isn't just about gold, other metals, and oil. Soft commodities and food are attracting headlines, plus alternative energy. This is a big subject, and we plan to issue separate detailed research, and also expect new fund launches. If you would like us to keep you up to date be sure to register for updates.
In the meantime, these are the most popular commodity-linked funds:
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