Snapshot

Video: why we're still bullish on commodities


Commodities globally have posted robust returns in recent years, prompting many to ask how long this performance can be maintained.

Commodities remain cheap, both on an absolute basis and a relative basis to other asset classes like equities.

We see similarities to previous periods of extended commodity market strength. The geopolitical stress we are witnessing today, emanating from Russia’s invasion of Ukraine, mimics the 1970s when the Arab oil embargo of 1973 and the Iranian revolution of 1979 drove huge cross commodity price appreciation.

The early 2000s were another period of strong bullish price trends in commodities. Then, under-investment in commodity supply, growing demand from emerging markets and expensive equity valuations made commodities look cheap on a relative basis. 

The drivers behind those factors are different but the conditions are very similar, which is why we think a similar period of bullish price trends to follow.

commodity-chart.PNG

Perhaps what gives us the highest conviction on commodities as an asset class is not the similarities to historical bull markets but the differences.

In particular we continue to believe that the global focus on climate mitigation strategies and decarbonisation is limiting the supply response to higher prices to an extent that is unprecedented. That breakage of the link between higher prices and a supply response is likely to significantly extend the commodities bull market.

When we combine these factors to our belief that we are entering a fundamentally more inflationary age, the case for an enlarged commodities allocation remains compelling.

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

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The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.