Commodities | Dec 12 2008
By Chris Shaw
Barclays Capital held its fourth annual Commodity Conference in the US last week and as part of the proceedings participants were surveyed to ascertain their views on the outlook for commodity markets.
The key finding, Barclays reports, was the level of commitment of institutional investors to commodities as an asset class remains very high. One key strength of the asset class according to those responding was the value of diversification the sector offers.
As evidence of this, the group notes 46% of investors attending anticipate to have more than 10% of total portfolios in commodities over the next three years. More than 75% of the audience expected to invest more than 5% in the sector over the same period of time.
As well, Barclays notes a variety of active management techniques are being used at present as investors attempt to deal with the extreme levels of volatility in commodity markets. Almost 75% of those surveyed currently use some active level of management, such as holding long and short positions in a variety of commodities or by combining long and short index positions, active strategies and structured products.
Barclays remains positive on the longer-term outlook for the commodities sector, as it sees upside from both the potential for demand to rise from the increasing incidence of fiscal policy measures being introduced to stimulate economic activity globally and from the increase in production cutbacks in various metals as a response to the current weakness in prices.
A good example at present is the oil market, where OPEC continues to lower production in an attempt to tighten the supply side of the market.
The current low prices in the commodities sector are expected to be just a temporary phenomenon according to those surveyed. Using oil as an example, Barclays notes 81% of those responding expected the oil price to average more than US$75 per barrel in the next five years.
But just to show the importance of fundamentals with respect to commodity prices, the group notes the major concern of participants in the survey was a slowdown in emerging markets. 34% of those responding saw this as a likely driver of prices in the medium-term.
