Sovereign risk, QE and geopolitical tensions - the key drivers of markets
One of the key features in commodity markets over the last three years has been sovereign risk in the wake of the credit crisis and quantitative easing (QE), says Nicolas Robin, Fundmanager at Threadneedle.02.07.2013 | 16:20 Uhr
We launched our long-only commodities strategy in the wake of the first Greek crisis and markets saw considerable support in the second half of 2010, on the back of QE. Since then, markets have tended to be fairly volatile and have gyrated in both directions.
Probably the most notable market feature since 2011 has been the resurgence of geopolitical risk, starting with unrest in Tunisia and spreading to Egypt, Libya, and the Middle East. More recently, investors have become accustomed to a background level of geopolitical tension, a familiarity that has diminished the risk premium for investing in certain markets. However, we believe geopolitical tension is an on-going theme that will provide support for energy markets over the long term.
Back in 2007 and 2008, correlation between individual commodities had reached very high levels. Of late, however, we have seen significant de-correlation between individual commodities, leading to polarised returns. For example, in the year to 31 May 2013, the DJUBS Commodity index returns for corn exceeded 33% while natural gas rose by over 20%. At the same time, wheat increased by just over 1%, aluminium fell by more than 10% and silver declined by more than 20%.