Summit Funds Focus: Commerzbank looks to Beijing not Washington for guide on commodities markets

Most of the world’s capital markets may be eagerly awaiting the outcome of US elections on 6 November.

However, the world’s commodities markets will be holding their breath for two days longer, when the Chinese Communist Party’s National Congress takes place.

They could also be watching, and investing in their markets, over the subsequent two months, if the predictions of Eugen Weinberg, Commerzbank’s head of fundamental global commodities research, are correct.

He says the Congress will be “even more important than the outcome of the US elections to commodity markets”.

The politicians who are installed in Beijing will intentionally keep economic growth low this year, Weinberg predicts, so that they can pleasantly surprise their populous with higher growth rates next year.

He predicts Chinese economic expansion of between 8% and 9%, up from current levels of about 7.5%.

The improvement in economic activity will be felt in the second quarter of 2013, but Weinberg says the effects will be felt first in commodities markets as early as the end of this year, when China starts “getting its hands on the materials” it needs to boost growth.

“About three to six months in advance they’ll need to [do this], so in December and January you’ll see more imports of those materials going to China, then you will get confidence that the next year in China will be hit.”

Weinberg says he is “not too concerned” about claims China is in a bubble, and people have said its growth rates were unsustainable often as it grew to become the world’s second largest economy behind the US.

Even 7.5% is comfortably above the definition of ‘hard landing’, of 6% expansion, he said, and far above meagre growth rates in much of the Western world.

“The Chinese economy right now for the world is much more important than the UK, Germany and France, and the world’s second largest economy is still growing at 7.5%.”

China’s dominant demand for the world’s raw materials is just one of the themes in Commerzbank’s recently launched, €350m commodities fund. This theme is, arguably, reflected in a 7% weighting in each of copper, aluminium and nickel.

A second major theme, the “reckless behaviour of central banks”, is demonstrated by a 13% weighting in gold, taken via physically-backed ETFs.

Weinberg explains: “Central banks simply have never acted like this before, and we have never heard of something like ‘unlimited supply’ [of liquidity], but the European Central Bank and Federal Reserve will be doing as much as is needed until certain criteria are met, and everyone else is doing the same.”

 

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