Commenting on the state of global equities, Columbia Threadneedle chief investment officer Mark Burgess noted that while commodities were trading at a lower level than in previous years, recent market signs indicated improvement may be just around the corner.
“Commodities stand out as one asset class that has yet to see an uplift. We see commodities as a useful portfolio diversifier and are mindful of its ‘catch-up’ potential, so we have lifted our allocation to the asset class,” Mr Burgess said.
Commodities are currently trading below their 15-year average, owing in part to a slowdown in Chinese growth, Mr Burgess said.
“At a broad level, commodities rallied from 2000 to 2008, driven by the rapid industrialisation and urbanisation of China, but as the pace of this levelled out commodities entered a bear phase and now almost every commodity is trading below its 15-year median trading level, aside from gold, coffee and cotton,” he said.
The outlook for commodities, however, is “more favourable”, Mr Burgess said, adding that the current lower rate of production and increasing demand were “key drivers” for a bull market in commodities.
“We are now at the point where the supply/demand dynamic is rebalancing across commodity sectors,” he said.
The growing demand for gold, which has seen gold prices hit record highs, was one indicator of this, Mr Burgess said.
Demand for gold for the first half of 2016 broke the previous record set in 2009 during the global financial crisis, and Mr Burgess noted the similarities between economic conditions then and in recent times.
“Investors clearly see gold as something of a safe haven amid dwindling bond yields and volatility across risk assets.
“Our world of extraordinary monetary policy and negative interest rates is new territory for many investors and so we do not envisage demand falling; instead we see it benefiting as part of a broadly based commodity rally,” he said.
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