In the case of commodities, it is increasingly looking like it has moved from the latter to the former.
Taking a selection of commodities linked indices shows a clear upward trajectory has taken hold over the past three months. Given the notoriously fickle and volatile nature of investing in commodities though, investors should rightly give more careful consideration to jumping on the bandwagon than they may do in the case of other asset classes.
With commodities being so sensitive to geopolitical events and rhetoric uttered by the world’s central bankers, it takes a brave investor to confidently call a commodities bull market in its early stages.
One set of unfavourable headlines can quickly pull the rug from under the asset class. Tomorrow’s Organisation of the Petroleum Exporting Countries meeting is a prime example. Markets have priced in an uneventful meeting of the major oil nations, but any significant deviation from this would send traders around the world into something resembling panic mode.
One expert who believes the corner has well and truly been turned is Schroders head of commodities Geoff Blanning, who said a “new bull market” for commodities has begun.
Granted, as a professional commodities investor he has a vested interest in the asset class performing, but being prepared making a public call on the future direction of this particular asset class is never without merit.
“Following five years of devastatingly poor returns in the market, sentiment towards commodities is at rock bottom, but it’s starting to turn following the surge in the prices of a wide variety of products since the beginning of the year,” he said. “The biggest price gains, in percentage terms, occur at the beginning of a bull market. And the best, lowest risk, time to buy anything is when the consensus expectation is turning from bearish to bullish, as is happening now in commodities,” he argued.
Senior portfolio managers at Nikko Asset Management Daniel Forgie and Simon Down see the prospects of a sustained rally for oil in particular as very good.
