26 Nov 2015

The Coming Commodities Boom!

Are you Ready ?
Since its peak of 230 in 2008, the Bloomberg commodities index has crumbled to 82 in 2015. This
translates to a crash of 65% in 7 years! Of course, it was not a straight fall down and we did see
some revival in 2011 towards 170 on the back of easy money and some dead cat bounce of the
Chinese economy.
Whenever we evaluate commodities, the evaluation is essentially & inherently of the Chinese
economy. This is because the last decade saw a larger than normal demand in physical commodities
on the back of the Chinese growth story. They became the worlds largest consumers of metals.
With the Chinese economy witnessing a hard landing, the commodities gobbler reduced consumption
putting a huge pressure on an already faltering commodity prices.
The pressure on crude oil prices due to geo-political strategies led to the commodities index crashing
further to the current levels of 82 levels which were not seen in past more than two decades.

The world is trying to recover economic growth after the 2008 debacle. Most governments followed
an easy money policy, only to unpleasantly find later, that the easy money fuelled paper assets
rather than physical assets.
But now it seems that this trend may reverse. In

the coming quarters, we should not be

surprised if money shifts from paper assets in to physical assets.

The theory of economic cycles should, sooner than later, come in to play and we shall see the supply
lagging behind demand for commodities (please note that at the bottom of the economic bust, demand
does not necessarily pick up, but supply starts drying up which leads to a rise in prices)
Thus those of you, who have treated commodity stocks like crap till now, may want to reconsider
their stand for the coming years!
Prices follow fundamentals and price charts are nothing but reflections of the collective investor
behaviour. A technical price chart analysis also suggest that we are near the bottom remember,
bottoms are usually made in panics and that is what we are observing in todays times. Long term
investors would be better off buying commodity based stocks in the coming two quarters and sit tight
thereafter!
CA RAJIV D KHATLAWALA

Disclaimer
Views expressed herein are for academic and educative purposes. Please take your own decision while
investing. The Author cannot take any responsibility for actions taken by anyone based on this article.