Commodities, not bitcoin and other digital currencies will be the best asset class of 2018
Last week I attended the fifth Global Commodities Outlook Conference organised by traders Richcomm under the aegis of the Dubai Multi Commodities Centre and held in the newly refurbished Almas Tower at the heart of the free zone.
There was more optimism in the air than I can remember for some years, despite the backdrop of one of the worst weeks for global stock markets since the global financial crisis.
A straw poll revealed that 10 per cent of the audience thought the worst of this sell-off was over, 15 per cent thought it would get worse and the vast majority remained undecided. In the event stocks rallied in the next few days, but who knows what comes next?
Panel sessions featuring some 30 experts naturally focused on commodities rather than shares.
At first I wondered if this was not unfortunate, given the immense interest in global stock markets. But then I began to realise that this might actually have been wholly appropriate.
Anybody who follows the long cycles in asset classes knows that some are almost always going up and some coming down, and part of the art of investing is to pick those with a future rather than those whose best days may be in the past.
It’s always hard to get this right, of course. But a more than 10 per cent correction in US stocks after two years of straight rises was significant, as was the fact that bond prices fell at the same time.
Could this have been the top for global stock markets?
It is possible but we won’t know that for sure until it is too late for us to take advantage as investors. But the balance of probabilities suggests the most overvalued US stock market since 1929 has topped out, or is very near to it.
At the same time the all-important US Treasury market has also begun to turn down with 10-year treasury yields finally succumbing to the pressure of four Federal Reserve rate hikes. Yield and bond prices move in opposite directions.
It is very rare to see bond and stocks heading in the same direction. Normally there is an arbitrage between them and they move in away from each other.
Note, then, that the haven of the US bond market, the largest and most liquid capital market in the world, is therefore currently closed to investors.
A long way further down the cycle of investment you will find commodities. Silver, gold and agricultural commodities are lowest in this group followed by base metals and then oil and gas, which sit higher up the curve.
Now, given that it was an inflation scare from rising US salaries that tipped the stock market over earlier this month, is it not reasonable to assume that commodity prices will benefit from inflation and so advance up the investment curve, even while stocks and bonds are slipping into a bear market?
Certainly our conference host Paresh Kotecha, chief ececutive and chairman of Richcomm, seemed to sum things up correctly when he said 2017 was probably “the calm before the storm”.
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