by Agrimoney.com
Shares look a better prospect than commodities for investors, given the relative strength in raw material prices and their vulnerability to tighter regulation - besides any economic setbacks, ABN Amro said.
Both asset classes could be hurt by threats including a "dangerous new chapter" in the story of Europe's sovereign debt crisis, as fears spread to Italy and Spain, and the spectre of the "mother of all tail risks" – a US default.
But commodities appear particularly vulnerable given the tighter regulations laid down in America's Dodd-Frank Act aimed at curbing excessive risk taking by investors.
"Some brokers have informed their clients that they will not trade commodities with US persons over the counter once the relevant provisions of the act come into effect," ABN analyst Georgette Boele said.
'Commodities are very expensive'
Furthermore, commodity investors have displayed an unusually sanguine, "glass half full" attitude towards the asset class, failing to take downside risks into account.
Indeed, the ratio of the Dow Jones industrial average share index to the CRB commodities index has fallen to 36 – far nearer its June 2008 low of 24.73 than its peak of 106 in 1999.
"Taking the historical perspective into account, commodities are very expensive compared to the Dow Jones," Ms Boele said.
"The prospect of more commodity underperformance compared to equities is only increasing.
"Therefore, from a portfolio perspective, we remain 'neutral' at best [on commodities] with a negative bias."
Price forecasts
The bank foresaw falls ahead in many metals, with copper expected to end the current quarter, at the close of September, at $9,100 a tonne and steel at $705 a tonne.
However, it retained reservations over prospects for farm commodities too, seeing Chicago wheat ending the period at $6.50 a bushel, compared with a current price of $7.11 ¼ a bushel for the September lot.
New York sugar will end at 26 cents a pound, down from a current price of 29.31 cents a pound for October delivery.
For cocoa, the forecast was for a drop to $2,900 a tonne, sapped by a surplus of 187,000 tonnes in world production over consumption in 2011-12.
"Given market fundamentals, cocoa prices are expected to decrease," ABN analyst Thijs Pons said.
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