Investment Strategies

Be Bullish On Global Commodities - Baring Asset Management

Dessi Sevdina 19 March 2010

Be Bullish On Global Commodities - Baring Asset Management

In response to China's continued focus on infrastructure expansion and in order to protect against inflation, Johnathan Blake, manager of the London-based Baring Asset Management's Baring Global Resources Fund, has increased the fund’s weightings in base metals and precious metals.

The fund's allocation to base metals has increased from 43 per cent at the end of December 2009 to 48 per cent at the end of last month, with a particular focus on bulk commodities such as iron ore and copper. Demand for a select group of hard commodities continues to grow, as infrastructure spending in China rose by 42 per cent in 2009 after a 21 per cent increase in 2008. 

To protect against a rise in inflation over the medium-term, and reflecting on expected improvement in the fundamentals of this market, Blake also plans to increase the fund’s allocation to precious metals -predominately gold and platinum - over the next three to six months.

“Much of this infrastructure investment is to meet the demands of urbanisation, the scale and speed of which is staggering," said Blake, pointing out that it is estimated that an average of 17 million people will be added to China’s urban population each year between 2000 and 2025.

Blake explained that “quantitative easing has, to some extent, hit confidence in currencies, such as the dollar and has heightened expectations of a rise in inflation at some point in the future". This, in his view, boosts the appeal of gold as an alternate store of value.

Barings expects prices of oil above $80 a barrel, according to long-term fundamentals. As such, the fund favours shorter-term stocks that can outperform in the benign oil price environment and is targeting companies involved in exploration and ability to increase current production and/or reserves.

Furthermore, Barings has a positive outlook for the medium-term soft commodities sector, and is particularly attracted to the fertilizer market. Reduced use of fertilizers in 2009 will mean an increase in fertilizer volume because soil nutrients have been depleted and there will be a boost through the restocking of the supply chain.

Blake concludes: “We believe the long-term case for resource equities is attractive, driven by sustainable global demand led by China, and instability of supply. In the short-term there will be plenty of volatility but this presents some tremendous opportunities for skilful stock picking.”

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