Fund managers reverse withdrawal from commodities

by Agrimoney.com

Fund managers have called time on a withdrawal of cash in commodities, amid improved hopes for global economic growth, and reduced concerns for China.

The proportion of asset allocators overweight in commodities, minus those with smaller-than-orthodox positions, rose to 13% this month, after declines in May and June, a survey for Bank of America Merrill Lynch showed.

The rebound, from a reading of 6% last month, tallies with a revival in farm commodity prices from a liquidation heading into early July which drove Chicago wheat prices to their lowest for nearly a year.

However, it defied decreased expectations for rises raw material prices identified in the survey, which found only 6% of fund managers viewing commodity price inflation as the biggest economic threat.

In April, commodity prices were viewed as the biggest danger, a position taken now by European sovereign debt, named as risk number one by 64% of investors.

China sentiment

Nonetheless, the 265 asset allocators surveyed, managing nearly $800bn between them, were more sanguine on prospects for world economic growth, with a net 19% seeing the global economy strengthening over the next year, up from 10% in May.

And concerns over growth in China – a huge buyer of raw materials, including cotton and soybeans - have eased too.

A net 24% of Asian and emerging market fund managers see Chinese expansion slowing, down from 40% last month.

The rise in allocations of cash to commodity investments came at the expense of bonds, with investors also slashing positions in eurozone equities and, in particular, banks.

"Investors have acted decisively in response to recent developments in EU sovereign funding. The question is whether eurozone equities have been oversold," Gary Baker, head of European equities strategy at the bank, said.

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