In recent years, commodities have experienced a significant underperformance compared to stocks, particularly since the end of the 2008-2009 global financial crisis. From January 1, 1981 to April 30, 2024, the price of the S&P 500 Index cumulatively increased by more than 3,600%, while the S&P GSCI, an index of raw material prices, it only grew by 390%.
A new era for raw materials?
He writes it Tim Murray, Capital Markets Strategist Multi-Asset Division, T. Rowe Price explaining that “this lopsided result may have led some investors to conclude that commodities no longer have a place in a diversified investment portfolio. However, there have been long periods where commodities have highlighted better results than stocks, particularly in the inflationary decade of the 1970s.”
Three trends to monitor
There are – explains the expert – “several reasons why we could believe we are on the threshold of another period of solid revenues for raw materials, gthanks to three emerging “megatrends”.
The first, the deglobalization: rising trade barriers, coupled with supply chain disruptions during the Covid pandemic, have led to a partial reversal of globalization, driving up inflation. The second, the decarbonisation, as the push towards green energy implies the need to replace old, high-emitting fuels. Energy supplies are likely to tighten. The third and last, Artificial Intelligence: AI-related applications require enormous computer processing power, which could drive up energy demand.”
Favorable factors
They glimpse each other “already evidence of the presence of favorable factors for raw material prices. Copper and natural gas futures have seen notable gains in recent months. At the same time, peak productivity in the US oil sector has the potential to push up energy prices.”
Murray points out that “advances in shale-related technology have allowed oil companies to extract a greater quantity of oil, although the number of rigs in service has decreased dramatically. However, key measures to support oil productivity have declined steadily over the past year.”
Commodity price increases have been relatively modest for a long period of time, but we may now be in a new environment. As a result, “we are currently in a overweight position of the shares related to real assets”, concludes the expert.
