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March 2, 2015

Money Flowing to Commodities as Prices Drop

London, March 2015
Early 2015 has brought a marked pickup in investor interest in commodities, boosting inflows to almost $5bn, their highest in more than two years, and sharply reversing a period of consistent monthly outflows from commodity investments dating back to September 2014, according to Barclays Research.
Also favourable for commodities: correlations with other assets have stayed low so far in 2015; prices have fallen a long way, suggesting the potential for strong beta returns exists; and after the steady liquidation of commodity holdings in recent years, most investors are underweight the asset class.
"However, the early-2015 improvement in flows does not, in our view, signify a move back into broad commodity market exposures by investors on any great scale, nor is it a vote of renewed confidence in the asset class just yet. Instead, investors have focused very specifically on oil and gold, using ETPs to get opportunistic exposure to the two markets, which have been particularly volatile recently," say Barclays.
"Challenges include the return of steeply contangoed futures curves (especially in oil), a sluggish growth outlook in China, rapid supply growth in several markets, and the potential for further dollar strength. These all suggest another difficult year for commodity beta; although outflows may slow from last year’s $20bn, we do not yet expect a return to consistent net inflows."
Ends --
Courtesy Commodites Now (EconMatters author archive here)  

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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