Investors are betting that the invasion of Ukraine and sanctions against Russia will feed the already hot rally in raw materials.
The war conquered world markets, raised the prices of a number of raw materials. Wheat has risen to its highest level since 2008. Corn prices have jumped about 25% so far this year, reaching their highest levels since March 2013 before lowering profits. Aluminum and nickel have jumped to their highest levels in more than a decade.
Federal Reserve Chairman Jerome Powell said on Wednesday that he would propose a four-percentage point increase in interest rates at a central bank meeting in mid-March that would push taxation so that the Fed would not react too aggressively to curb inflation.
These developments helped mutual commodity mutual funds and exchange-traded funds to report net flows for the eighth consecutive week until Wednesday, according to data from Refinitiv Lipper. This is the longest series of 23-week series ended in June 2021. The inflow for the week ended March 2, amounting to 867 million dollars, was a record high, according to data from 2011.
The jump prolongs commodity gains, many of which have reached multi-year highs in 2021. Analysts say global supply of several goods, already limited by supply chain barriers, adverse weather and strong demand, could be further strained.
“People are looking for a way to get out of the impact of inflation, and goods really look like a good hedge,” said Hakan Kaya, senior portfolio manager at Neuberger Berman, whose company increased its exposure to energy from livestock to livestock and agriculture in 2022. .
Commodity prices tend to rise along with inflation, and investors often use them to hedge portfolios. Commodity funds invest in both commodity derivatives and the commodities themselves.
The S&P GSCI, a benchmark for raw materials, has added about 30% so far this year, while the broad-based S&P 500 has withdrawn by about 10%. The Bloomberg Commodity Index rose about 30 percent during the period.
“This is the type of environment in which goods have proven their worth in terms of why they come first in the portfolio,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management Co.
Seven-year peaks in energy prices are contributing to the growth of raw materials. Brent crude oil, global oil, has risen about 50 percent so far this year, trading more than $ 118 a barrel recently. Higher energy prices have a secondary effect: smelters could reduce metal production, for example, while farmers could pay more to transport grain.
Although investors can benefit from rising commodity prices, they pose broader economic concerns. Analysts say higher inflation coupled with lower economic growth could increase the risk of a recession. Meanwhile, investors are watching the events in Ukraine and the effect of sanctions on Russia.
“Broad-based commodity exposures have performed well and continue to make sense as the conflict continues; “Continued and further escalation could and is likely to lead to higher levels of the index,” analysts wrote in a note from RBC on Tuesday.
As Ukraine suffers military attacks by Russian forces, analysts warn that global wheat supplies could be seriously threatened. Shelby Holiday of the WSJ explains. Photo: Valentin Ogirenko / Reuters
Write to Hardika Singh at [email protected]
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