Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management division, said, “Investor and consumer sentiment has continued to deteriorate and this may further impact the rate of economic growth. However, fundamentals for certain commodities remain positive. Prices will continue to be sensitive to exogenous shocks (i.e. labor unrest, geo-political risk, weather related disruptions) in the face of tightening global supplies and higher demand over the last several years. While investors have been increasingly focused on a possible sharp China slowdown this year, the main source of volatility in commodities demand over the coming months may be derived from European economies rather than from China.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Overall, fiscal and monetary policies in the US and Europe are expected to remain accommodative. In addition, the amount of easing and the length of the stimulus period are likely to increase as policy makers continue their debate. Such measures will most likely increase the odds of greater-than-expected inflation over time. The reconciliation of these issues can impact traditional asset classes and commodities in different ways. We believe investors will continue to benefit from the long term diversification benefits that commodities provide.”
The Dow Jones-UBS Commodity Index Total Return was down by 14.73% in September. Overall, 17 out of 19 index constituents decreased in value. Industrial Metals was the worst performing sector, given the sector’s high correlation with global growth, ending the month down 20.06%. Signs continued to suggest growth would slow in the developed world while worries over the sustainability of China’s growth intensified. Chinese and European Purchasing Managers Index (“PMI”) readings came in weaker than expected. However, Chinese trade data has continued to hold up thus far. Refined Copper imports continued their recovery from April’s lows; Aluminum imports rose sharply, turning China once more into a net importer; and Zinc imports climbed strongly month-on-month. Agriculture ended the month lower, losing 18.97%, as grains led the complex lower on improved weather conditions and better-than-expected inventories. Precious Metals also ended the month lower, losing 15.61%, led by Silver. The flight to US Treasuries and demand for US dollars towards the end of the month resulted in Gold being liquidated alongside other assets. The Energy sector posted a loss of 11.23%, with all components trading lower. While global Crude Oil demand growth has slowed from the high base of last year, fundamental data releases remain broadly supportive for the crude complex and demand remains healthy versus historical standards. Livestock was the strongest sector, gaining 7.65% for September due to continued strong export demand and falling grain prices.
The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team’s white paper, “Commodities Outlook: Increased Volatility, Increase Opportunity?“, please email firstname.lastname@example.org.
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy has been managed for 17 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:
- Spot Return: price return on specified commodity futures contracts;
- Roll Yield: impact due to migration of futures positions from near to far contracts; and
- Collateral Yield: return earned on collateral for the futures.
As of September 30, 2011 the team managed approximately USD 10.1 billion in assets globally.
An investment in commodities is not a complete investment program and should represent only a portion of an investor’s portfolio management strategy. Investment in commodity markets may not be suitable for all investors. Commodity markets are highly volatile and the risk of loss in commodities and commodity-linked investments can be substantial.
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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.
Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.
Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative’s original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor’s portfolio management strategy.
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