Chief Economist at Hawk Trade, Kaito Natsuhiko says that the commodities supercycle is pausing for breath.
The optimism and excitement that accompanied the rapid rise of commodities prices in the aftermath of the collapse of Lehman Brothers in September 2008 seems to have waned as the bull market in equities has scaled new highs.
Where once, copper, iron ore, gold, the Aussie and Canadian dollars and even wheat were the assets du jour, today, it’s very much all about the widely-acknowledged slowdown in the emerging market powerhouses like China, Brazil, Russia and most of ASEAN and how that impacts upon demand for commodities.
So is the party over for commodities? Kaito Natsuhiko, Chief Economist at Tokyo-based private equity and investment house Hawk Trade doesn’t think so.
“Many investors held commodities to try to tap into demand from the growing middle classes in BRICS countries and as a way of hedging against the debasement or devaluation of currencies caused by central bank quantitative easing in developed economies. Now that those policies seem to be coming toward the end of their lifespan, the general wisdom is that investors have sold up and moved into other assets but we don’t think the devaluation of money is anywhere near being complete. We think that governments and central banks will never be able to completely end these policies. One only need look at what the Bank of Japan is doing by printing trillions of yen to create inflation. The US may be visibly unwinding stimulus but, rest assured, they will return to the printing presses as soon as stocks crash or bond yields track too high causing mortgages rates to rise and the cost of US government borrowing to become too expensive,” he said.
Hawk Trade takes a long term views of the investment landscape and although the media collectively swears the global economy is improving, we know that this is not the case. The US came out of recession in 2009 and it’s still nowhere near achieving the kind of escape velocity all that quantitative easing promised to deliver,” he continued.
Hawk Trade says it is still bullish on precious metals and that gold below $1300.00/oz is a “screaming buy”. It likes iron ore and copper over the short-medium term reasoning that while Chinese authorities may be deliberately engineering a slowdown, they will not hesitate to add stimulus when growth slows too far, too quickly.
“In our view, the commodities supercycle has some way to run but proceedings are just pausing for a short time in the form of a much-needed correction. A bet on commodities is a bet against the ability of the central banks to continue to manage markets; you’re betting against the tail wagging the dog,” concluded Mr. Natsuhiko.
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