UBS make a case for commodities

GENEVA (Aug 9)  Swiss investment bank UBS has released a research note backing commodities and commodities-based equities to outperform in the coming months. The report said "positioning in these assets has been curbed recently due to growing fears of a recession"

Backing this theory the report said "Commodity markets are generally much less forward-looking than stocks and longer-term bonds since they reflect current supply/demand conditions. As such, these exposures may perform well in a late-cycle environment where demand is slowing, but positive – so long as supply remains limited. That is the backdrop we expect will prevail over the near term"

The Swiss bank laid out the case for growth returning to China. UBS noted, that China is unlike nearly all major regions in that activity is poised to improve. Beijing’s willingness to deliver measured but meaningful stimulus is not in question, in our view. Better public health outcomes will allow for evidence of this support to appear in the data. China is the dominant driver of demand for many commodities, so this positive inflection may meaningfully offset the slowing in developed market demand growth

At the end of the article, the analysts wrote. energy and materials remain sectors that are extremely inexpensive relative to global stocks despite having enjoyed a long period of significantly superior earnings revisions. While these are by no means recession-proof parts of the market, we believe that the cheapness does help cushion the magnitude of additional downside should threats to the expansion grow more intense.

KITCO