Commodities Investment ViewPoints |
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22/02/2011 Libya - What does it mean for investors? 08/02/2011 Unrest in Egypt - what does this mean for investors and the economy? 23/12/2010 The magpie effect – investing in gold 08/12/2009 Gold and Japan both on the rise 12/10/2009 Gold’s lustre returns 01/05/2009 Oil: A slick investment for your portfolio? 30/03/2009 ViewPoint revisited - Oil |
09/03/2009 Commodities 27/01/2009 Back to black 17/12/2008 Gold: a wise man's gift? |
5 April 2011 - Compass April 2011 – Investing in a resilient recovery
This week’s Investment ViewPoint summarises the most recent edition of Compass, the monthly investment research publication from Barclays Wealth. The four main themes identified for April are: the terrible events following the earthquake and tsunami in Japan, unrest in North Africa and the Middle East, sovereign debt concerns in Europe and the changing interest rate landscape in Europe and the US.
Japan
Some of the damage done to Japan since the earthquake and tsunami of 11 March is irreversible. The loss of human life is devastating and the prognosis for nuclear power in the region is still to be determined. However, our experts would not place the economic prognosis for Japan in the same category. As discussed in a previous Investment ViewPoint – The Japanese earthquake and its global impact – Japan is a resilient nation and will no doubt undergo an incredibly effective and convincing recovery from this natural disaster.
In addition to the uncertainty that investors feel when events unfold extremely quickly (as they have done during this situation), Compass details three very specific effects – “the viability of nuclear energy will be questioned again; the global insurance sector will see its profits hit hard; the Western central banks may be a little slower to act on official interest rates than seemed likely, at least in Europe…”.
Events in North Africa
Events continue to unfold in Libya and Compass again states that “the human and political significance outweighs the likely economic impact”. Oil prices remain volatile but the commodity is relatively stable, given the political control in Saudi Arabia. As the largest provider of oil to the Western world, the importance of that stability cannot be overestimated. On a slightly different tack, it would be advisable for investors to keep an eye on events as they unfold in Bahrain. If the West is forced to intervene, that could be damaging to what is currently a strong economic relationship.
Sovereign debt in Europe
There remains a visible risk to European sovereign debt although politicians are now beginning to build “a more unified fiscal framework that has been missing from the euro architecture since its inception”. The economic circumstances in Europe continue to unnerve investors and are a destabilising force in the global recovery.
Global interest rates
Compass states that “the outlook for official interest rates is slowly hardening, and will inevitably fuel discussion of pending policy mistakes and renewed “double dip” risk”. It notes that interest rates are still at emergency levels and inflation is a growing risk. If governments are indeed forced to raise interest rates (Compass predicts this will happen in Q2), there will be a negative impact on mortgage and business borrowing costs, corporate confidence and relative returns on investment portfolios. The risk is that with a rise in interest rates, comes a rise in uncertainty and a fall in risk appetite.
Resilient global recovery
Despite the doom and gloom, Compass reassures investors that the global recovery still has considerable momentum. In particular, the US is less fragile than it was last year. Compass sticks by its previous line – investors should focus on developed equities, as that “is where prospects are brightest relative to expectations”. Although emerging markets are forecast to grow at a faster pace, they also face more pressing inflation and interest rate concerns.
Investors looking for exposure to international developed equities could consider International Trader. Our platform allows clients to trade in stocks listed on major US, Canadian and European exchanges.
You should ensure that you research the regions you are interested in and fully understand the nature of the stocks in which you invest. Also bear in mind that investing internationally brings with it currency risk. Fluctuations in currency values could have a negative impact on the value of your investments.
For those with an interest in investing in Japan, or in commodities such as oil, you could consider using Exchange Traded Funds (ETFs) or Exchange Traded Commodities (ETCs). ETFs such as the iShares MSCI Japan (IJPN), an ETF designed to track the MSCI Japan index, or ETCs such as ETFS Crude Oil (CRUD), designed to track the DJ-UBS Crude Oil Sub-IndexSM could be worth considering.
You should be aware that the price of oil can be volatile and you may incur losses if you invest in oil-related products. The value of investments in ETCs such as ETFS Crude Oil can go down as well as up and you may get back less than you invest.
You should ensure that you read and understand the full simplified prospectus for products such as ETFs and ETCs before investing.
22 February 2011 - Libya - What does it mean for investors?
Two weeks ago we wrote about the political unrest in Egypt and the potential impact for investors.
In our Investment ViewPoint: Comment – Unrest in Egypt, we mentioned the potential for a domino effect and a fortnight later, the situation has developed at alarming pace. Since the Tunisian and Egyptian populations rose up against their governments, a wave of protests has swept the Middle East, extending to Bahrain and the North African countries of Libya and Morocco.
In Bahrain, despite some initial scuffles, the protests appear to have been resolved peacefully. However, the situation in Libya has some darker undertones, as reports of violence against protesters continue to emerge.
From an investment perspective, there are important consequences of the ongoing events in Libya. Both gold and oil prices have risen substantially and there has been a negative impact on equity markets, particularly those of some European countries with a large exposure to Libya. One example here is Italy, a country with considerable cross-investment with Libya, not least the Italian oil giant Eni, which pumps out almost 250,000 barrels a day. This accounts for almost 15% of the country’s oil production.
What does it mean for oil?
Let’s look at the reason oil is so heavily impacted by this situation. Libya is a leading oil-exporter (12th largest in the world) and is critical for European oil supplies. In fact, oil provides Libya’s largest export income.
Since the beginning of the political crisis, oil companies from around the world, including the likes of BP and Royal Dutch Shell, have started to evacuate their staff from Libya. With less people there to man the oil fields, the pressure on the Libyan oil supply chain is mounting. This drives up the oil price. When markets closed on Monday 21 February, the Brent crude oil price reached $109, a two and a half year high and West Texas Intermediate (a US oil benchmark) also jumped.
There will also be a knock-on effect on the price of gas and other natural resources.
What are the other effects??
In nervous times of uncertainty, investors turn to traditional safe havens, typically this is gold and, in this particular instance, oil.
Another effect is that investors tend to retreat from equities. This current situation is no different. On Monday, a US holiday, European equities in particular suffered as a result of news from Libya. Against a backdrop of concerns that the spike in the price of crude oil could accelerate inflation on a global scale and dent the chances of economic recovery, the FTSE Eurofirst 300 Index fell on Monday 21 February. This is a tradable Index which tracks the performance of European 300 largest companies.
The knock-on effect of a rise in oil prices can be significant. The potential increase in petrol and energy prices is obvious but there may be other consequences for consumers. In particular, the cost of goods and services rising to compensate for increasing transport prices. This in turn could send inflation higher, already a key concern for the global economy.
What are your options?
For any investor, it is absolutely key to stay on top of news as it progresses and to ensure that your portfolio is prepared accordingly.
Another is to acknowledge that although Libya is gripped by political uncertainty, this situation does present trading opportunities. The volatility in oil, gold and equities creates these opportunities for investors.
International Trader gives you access to 24/7 online equities trading, across 13 international markets, 21 exchanges and over 9,000 equities, perfect for the investor who wants to do their own international stock-picking. Please remember that the value of investments can fall as well as rise and you may get back less than you invested.
8 February 2011 - Unrest in Egypt - what does this mean for investors and the economy?
International focus has fallen on Egypt over the past week or so as unrest increases and sweeping political change looks increasingly likely.
The current uprising is predominantly driven by a young, burgeoning population reacting to what they see as a constrained social, political and economic environment. They are demanding constitutional reform.
Aside from obvious concerns for the immediate safety and wellbeing of Egyptian citizens, foreign nationals and tourists, there are also broader concerns about the political and economic impact that this situation may have in other areas. Even if the Egyptian crisis comes to a speedy conclusion, we are already seeing some short term economic effects.
Oil factor
The most immediate economic concern for the developed nations is oil, more specifically Egypt’s Suez Canal. The canal is an integral shipping channel for the transportation of oil from the Middle East to the US and Europe. Should the current unrest in Egypt disrupt the flow of shipping traffic, alternative routes would need to be used, increasing delivery times and costs. Just the potential that this may happen has been enough to see oil prices hit two year highs - the price of Brent Crude Oil rose through $100 per barrel on Monday 31 January.
The knock-on effect of a higher oil price can be significant. The potential increase in petrol and energy prices is obvious but there may be other consequences for consumers. In particular, the cost of goods and services can rise to compensate for increasing transport prices. This in turn could send inflation higher. As we discussed recently, inflation is already a key concern for policymakers (see our recent Investment ViewPoint:Comment –“Markets hit the ground running as the issue of inflation starts to rear its head”).
There are additional considerations for many UK companies. Tourism in Egypt has thrived over recent years, but the unrest has cut short many trips for UK holiday makers. UK tourism companies such as Thomas Cook Group (TCG), EasyJet (EZJ) and Ryanair Holdings (RYA), may be feeling the effects. Companies with key operations in Egypt, such as BG Group (BG.), will need to assess what the current situation means for their businesses.
Domino effect
The longer term concern for the global economy is the general stability of the wider region, particularly the neighbouring Middle East. For many, the real fear is that a domino effect could develop. If Egypt’s current government collapses and political reform is introduced, it may lead to neighbouring countries following suit.
Should this spread to the major economic players, then the impact on oil prices would only be amplified. The result could well be a major shift in how global economic dynamics work.
You can track the economic news related to the Egyptian situation, and the impacts on specific companies, by logging in and visiting our online Research Centre.
Investors interested in achieving investment exposure to oil may want to consider Exchange Traded Commodities (ETCs) that are designed to track the commodity. For example ETFS Crude Oil (CRUD) is an ETC designed to track the DJ-UBS Crude Oil Sub-IndexSM. You should be aware that the price of oil can be volatile and you may incur losses if you invest in oil-related products. Investments in ETCs such as ETFS Crude Oil can go down as well as up and you may get back less than you originally invest. You should ensure that you read and understand the full simplified prospectus for such products before considering an investment.
23 December 2010 - The magpie effect – investing in gold
Gold is often seen as a barometer for investor sentiment and it is easy to understand why it is popular at the moment.
- The price of gold is at an all time high in US$, as well as other currencies
- Traditionally, gold has a low correlation with equities which can be attractive for portfolio diversification.
- The US, Europe and China have all recently implemented quantitative easing measures aimed at stabilising economic recovery and avoiding sovereign debt crises.
The result is that most investors have less faith in currencies, preferring to invest in something more tangible to hedge against inflation….which is where gold comes in.
Going for gold
Historically, demand for gold jewellery has been the main driver for global gold purchases. However, in recent years, investment demand has caught up1.
According to ETF Securities, falling demand for jewellery and gold bars was offset by rising investment demand in 2009.
So what about the price? The price of gold has risen quite steadily for the past ten years, reaching a high of $1,421/oz. on 9 November 2010. (At the time of writing, the price has dropped back slightly to just above $1,360/oz)
Gold (and related products) continues to enjoy huge popularity with investors who see the commodity as a steadfast investment. Some of our recent research showed that physical gold is regularly the most popular Exchange Traded Commodity (ETC) amongst clients of Barclays Stockbrokers. In October, 5% of Barclays Stockbrokers exchange traded product (ETFs/ETCs) trades were physical gold related products. A similar trend has been seen across the wider market, with the London Stock Exchange confirming that ETFS Physical Gold (PHAU) was the second most traded exchange traded product for 20102.
Does gold have a glittering future?
The industry has mixed views on whether this success will continue, with some analysts predicting the gold bubble has to burst while others think it has further to go. With the current unprecedented fiscal situation, specifically across Europe, the future of gold becomes difficult to predict.
How can I enjoy the shine?
Whichever view you take there are a number of ways you can get into gold (other than making an expensive visit to the jeweller!). For direct investment exposure you could consider an Exchange Traded Commodity (ETC) which tracks the gold price e.g. ETFS Physical Gold (PHGP). Alternatively you can invest in a gold mining firm, with companies such as Randgold Resources (RRS) and Allied Gold (AGLD) listed and trading on the LSE. You could also consider funds which invest in gold mining and precious mining companies such as Blackrock Gold and General and Investec Global Gold, both available through our Funds Market.
The risks of investing in gold
Investment in gold produces no income; its value lies in only its capital value which can go down as well as up. The price of gold may be volatile and you may incur losses if you invest in gold.
Dealing in ETCs/ETFs that provide investment exposure to gold may not for everyone; please seek independent advice, if you are in doubt as to their suitability for you.
Find out more about Exchange Traded Commodities
Visit our Funds Market
1 Financial Times, 9 December 2010, http://www.ft.com/cms/s/0/b52d834c-03bd-11e0-8c3f-00144feabdc0.html
2 London Stock Exchange ‘Exchange Traded Funds and Exchange Traded Products – monthly statistics, November 2010’.
8 December 2009 - Gold and Japan both on the rise
It has been quite a year for gold. The commodity has been one of the significant beneficiaries of the financial climate over the last 12 months, with the gradual weakening of the US $, an environment of low interest rates, and periods of cautious investment appetite all combining to provide the right blend of economic conditions for gold’s price to soar. Gold hit a new all-time price high on Thursday 03 December as it broke through $1,225/oz and its spot price has now appreciated by 61% in the last 12 months.
Forecasters seem to have consensus on gold’s price remaining strong in the short term, with some predicting it will stretch as high as $1,350/oz in 2010. However there is also consensus that the inherent market movement in the commodity’s value will remain, which clearly presents risks to investors. In addition, the mid to long term view on gold is mixed. While the economic conditions currently favour the precious metal, those will inevitably change over time, and combined with the market movement gold’s price displays, this could mean a sudden burst of the bubble. Investors who choose to buy into gold would be wise to monitor the commodity closely and manage their position. As with everything, timing of the exit from an investment in gold could be critical.
For further background on the economic dynamics of gold read our Investment ViewPoint: Analysis article from December 2008 “Gold – A wise man’s gift?”.
If gold is a commodity you want to investment in then you could consider the Exchange Traded Commodity (ETC) ETFS Physical Gold (PHGP) as one of the most direct ways to get investment exposure.
You should bear in mind that investment in gold produces no income; its value lies in only its capital value which can go down as well as up, its price may fall as well as rise and can incur losses. Dealing in ETCs is not for everyone; please seek independent advice if you are in doubt as to their suitability for you.
Elsewhere in global equity markets, Japan captured investor attention as the Nikkei 225 Index rose by 10% during the week, its biggest weekly gain in 17 years. The main driver behind this was a shift in policy from the Bank of Japan who sought to halt appreciation of the Yen by introducing a new short term liquidity programme.
Japan embraced low interest rates and quantitative easing before most developed markets with the Yen strengthening throughout the year as a consequence. However the change in direction is viewed as a move that may take pressure off exports, a critical component of Japan’s economy that has been constrained by the Yen’s strength. Japanese equity markets responded very strongly as a result. Further changes to bolster this position are anticipated. The new Japanese government announced its first fiscal package of 7tr Yen on Tuesday 08 December, aimed at preventing a return to recession in 2010 and announcements on more aggressive measures at the Bank of Japan’s scheduled meeting in two weeks time are expected.
Investors interested in gaining exposure to the Japanese market might want to consider an Exchange Traded Fund (ETF), such as the iShares MSCI Japan. Alternatively a managed fund focussed on investing in Japanese equities may be of interest. There are over 30 funds in the IMA ‘Japan’ sector on Barclays Stockbrokers Funds Market. Access the Fund Factsheet Search on our Funds Research Centre and select ‘Japan’’ from the IMA menu selection to find out more.
Remember that the value of funds can fall as well as rise.
12 October 2009 - Gold’s lustre returns
The price of gold hit new highs last week and on Monday 12 October it picked up where it left off, breaking through the $1,050 p/oz mark as a renewed gold rush took hold.
The past nine months have seen gold’s popularity soar. The credit crisis triggered a flight to safety from investors and gold’s perceived safety and lack of correlation with equities saw investors flock to it. From April, the equity market rallies dulled its lustre slightly but last week saw it’s popularity pan back into focus as apparent weakness of the US $ and growing inflation concerns, driven by the substantial fiscal stimulus plans and monetary easing programmes, pushed the price up into new territory.
While this is not necessarily panic buying it is interesting to consider gold’s performance in a broader context. Gold bullion has actually underperformed equities in 2009. In dollars, the total return for the MSCI AC World Index, stands at roughly 28% since 31 December 08*. Gold is up by 22% over the same period.
So while gold seems to be the cautious investment of choice right now, investors would be wise to consider why they might be investing in it and for how long. If gold is still of interest then look back on our “Investment ViewPoint - Analysis: Gold – a wise man’s gift?” for more detailed insight into the economics of the commodity and how to get investment exposure to it. Bear in mind that commodities like gold and the products that provide investment exposure to them can be volatile. Their value can fall as well as rise and you may get back less than you invested.
* As at 13 October 2009. The table below shows the discrete annual performance of the MSCI AC World Index in each of the last 5 years. Past performance is no indication of future performance.
30/09/2008 to 30/09/2009 |
28/09/2007 to 30/09/2008 |
29/09/2006 to 28/09/2007 |
30/09/2005 to 29/09/2006 |
30/09/2004 to 30/09/2005 |
|
| MSCI AC World Index | -2.56% |
-28.44% |
+21.77% |
+12.53% |
+18.17% |
MSCI AC World index data sourced from www.MSCIBarra.com. Care has been taken to ensure the information is correct but Barclays Stockbrokers Limited neither warrants, represents nor guarantees the contents of the information, nor does Barclays Stockbrokers accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein.
1 May 2009 Oil: a slick investment for your portfolio
When it comes to commodities, oil remains one of the most sought after substances in the world. It is intrinsically linked to the economies of both the developed and emerging markets and can be both an indicator for economic health and a driver of it.
Like gold, oil traditionally has a low correlation with equities, meaning oil related investments in a portfolio can provide a healthy element of diversification. Similarly, oil and companies linked to oil have a history of outperforming most equity benchmarks during downturns when stock markets are perceived as being weak, however, this may not be in the case in the future. Oil, like Gold, is also sometimes seen as a good candidate for a hedge against inflation.
Click here to view the full Investment ViewPoint: Analysis
30 March 2009 - ViewPoint revisited: Oil
Rewind the clock back to ViewPoint on 27th January.
We presented research suggesting that crude oil could reach $50 per barrel by mid year and that the long run fair value of crude oil could be $64 per barrel, driven by a number of prevailing economic and market conditions (see figure 3).
Last week, crude broke the psychologically important $50 barrier, continuing on a bull run that started on 16th February. One factor influencing this is the FED’s investment in US government backed debt, a step taken to stimulate the US economy as it should lead to lower interest rates. As consumer borrowing is driven by lower interest rates, consumer spending increases along with the demand for goods and services, finally resulting in a new demand for oil and increasing oil prices.
A weakening dollar along with some positive market sentiment from the US could support a "long" view on oil.
For more information on oil, login to the research centre, and type “CRUD” into the “search stocks” box. This provides access to the ETF securities exchange traded fund, which tracks the DJ - AIG crude oil sub index.
For more opportunistic investors, oil is one of the many instruments you can trade through a Barclays Stockbrokers CFD or Spread Trading account.
Past performance is not an indicator to future returns.
19 March 2009 - Gold: time to unwrap the gift
At the end of 2008 we highlighted the features of investing in gold. Its safe haven status, negative correlation to equity markets and restraints on supply against firm demand have seen the price of gold rise steadily since the turn of the year, peaking at over $1,000 per troy ounce in February.For simple, tradeable, cost efficient access to gold we profiled the Exchange Traded Commodity (ETC) ETFS Physical Gold (PHGP) as one of the most direct ways to get investment exposure to gold and so far in 2009 its price has increased in value.
Click here to view the full Investment ViewPoint: Analysis
Commodity prices remain weak as recession dominates market sentiment, but the latest Barclays Wealth Signpost research remains positive on precious metals, especially gold. Physical investment demand in gold has surged lately and the status of gold as a ‘safe haven’ seems unlikely to change.
Gold a wise mans gift
Find out more about exchange traded commodities
This week oil prices plunged to $40 per barrel as yet more bad economic data sent stock markets sharply lower. The view from Barclays Wealth suggests that the downward correction could be close to its end and forecasts a modest recovery by the end of the year.
For more information on oil, login to the Research Centre, and type “ETFS” or “CRUD” into the “search stocks” box or for more opportunistic* investors, oil is one of the many instruments you can trade through a Barclays Stockbrokers CFD account.
Please bear in mind that investing in commodities is high risk; their values are volatile and you can quickly lose money.
*Results taken from those clients who took part in a Barclays Stockbroker’s web poll:
Volatile market conditions......
• make me seek greater security for my capital - 16% (187)
• provide the opportunity for short term wins- 70% (806)
• make me withdraw from the market to return when they are more settled - 14% (162)
(Total responses: 1,155)
27 January 2009 - Back to black?
Two important pieces of fundamental data affected oil price this week, a U.S. government report showed a bigger-than-forecast gain in crude stockpiles, and weak corporate earnings and economic data signalled a deepening global recession and reduction in demand for oil. In simple economic terms, where supply outstrips demand, prices fall.
However, commodities analysts at leading investment bank Goldman Sachs last week predicted that there is scope for a “new bull market” with oil prices expected to rise to circa $65 per barrel by the end of the year. In fact, December crude oil futures are currently trading at almost $60 per barrel, some $15 ahead of March futures.
This view is echoed by Barclays Wealth in its most recent version of Signpost, where analysts believe that long run “fair value” of oil could be $64 per barrel.
In the short term, the dip from current levels may continue as supply is reduced by oil producing countries and stockpiles remain strong. However, once equilibrium is achieved and demand is managed, it is envisaged that levels could reach $50 per barrel by mid year returning to $64 in perhaps 12 months.
So, for long investors looking to diversify their portfolio in tough economic conditions, oil could provide a significant upside return.
For more information on oil, login to the research centre, and type “ETFS” or “CRUD” into the “search stocks” box or for more opportunistic investors, oil is one of the many instruments you can trade through a Barclays Stockbrokers CFD account.
Past performance is not an indicator of future returns
Login to the Research Centre to read the latest Barclays Wealth Signpost
17 December 2008 - Gold: a wise man's gift?
According to the World Gold Council, demand for gold bars and coins doubled in the third quarter of 2008 and demand for gold through jewellery sales hit record levels in the same period. Although, of course, we don't know what the future will bring, all this is testament to gold's current popularity as an investment.
There are different ways to play gold in your portfolio over shorter and longer investment horizons. Some investors might see it as a safe-haven in current market conditions, or favour the broader diversification that a commodity like gold can add to their portfolio.
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