JPMorgan bank says bull run in commodities has legs as inflation, China lockdowns whipsaw stock investors

Name: Ukraine farmers plough on in the face of war that is fuelling a food crisis
Uploaded: 2022-05-08T23:30:24.000Z
Duration: 2 min 42 s
Description: Ukraine farmers plough on in the face of war that is fuelling a food crisis

JPMorgan Private Bank favours a basket of soft and hard commodities with prediction for 10-15 per cent upside over the next 12 months

The mix of price drivers – from pullback in capital spending to supply-chain disruptions and war – may change but the trajectory will likely be sustainable

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Containers stacked at the Lianyungang Port in eastern China’s Jiangsu province. Photo: Xinhua
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Cheryl Heng

Published: 7:30am, 9 May 2022

Investors should buy commodities as a hedge against inflation and geopolitical risks, with a composite basket of raw materials likely to help protect their capital as stocks and bonds failed to offer sufficient diversification benefits, according to JPMorgan Private Bank.

An index tracking 23 commodities from gold to crude, copper and soybeans across six different sectors tracked by Bloomberg could jump by 10 to 15 per cent over the next 12 months, it predicts. The index has risen 32 per cent this year, and more than 50 per cent over the past year.

A confluence of factors has helped propel commodity prices since mid-2020, including underinvestment during the pandemic and lockdowns in Shanghai and elsewhere that disrupted production and supply chains. Russia’s invasion of Ukraine has also destroyed supply, nullifying the effect of China’s economic slowdown.

“The correlation with inflation, whether as a driver or consequence, has helped insulate portfolios in an inflationary regime and has also provided good diversification in portfolios in 2022,” the bank said in its Asia cross-asset strategy report on May 5. “The mix [of drivers] may change in the years ahead, but the trajectory will likely be sustainable.”

02:42

Ukraine farmers plough on in the face of war that is fuelling a food crisis

Crude prices rallied 6 per cent last week to near US$110 a barrel after the European Union stepped up its sanctions on Russia by eliminating oil from the country within six months, a move likely to be met with retaliation. The outcome would be continued pressure on oil and natural gas prices, it added.

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