Brightbridge Headlines: Time to move some money to stocks from commodities

http://www.widepr.com/press_release/14866/brightbridge_headlines_time_to_move_some_money_to_stocks_from_commodities.html


ommodities have lost their luster for leading investment strategists on fears that global economic growth, particularly Chinese demand, may be lower than previously expected.

Instead, they are recommending investing in large-cap U.S. companies whose earnings have historically varied less through economic cycles. That includes defensive areas such as household products and utilities but also some technology and industrial companies.

Investors became more cautious about commodities after last week’s vicious unwind of oil, copper and precious metals — which some dubbed a mini “flash crash” similar to the one seen in U.S. equity markets a year earlier.

Even as strategists recommend steering away from commodities, they agree that the long-term outlook is positive. But over the near term they do not rule out another downleg in prices — especially if China, the world’s largest consumer of raw materials, continues to tighten monetary policy.

“Chinese policy makers made it very clear that there is ‘no absolute limit’ to what they will do to control inflation, which raised concerns around the impact of their actions on demand growth” for commodities, Jan Loeys, head of asset allocation at JPMorgan, wrote in a research note this week.

Economic activity has been moderating in China, and prospects for future growth seem less certain after the government signaled no end in its fight to curb inflation.

China raised bank reserve requirements by 50 basis points on Thursday, surprising analysts who had expected it to use monetary brakes less aggressively after a series of weaker-than-expected economic data for April.

For its part, the United States saw growth domestic product of only 1.8 percent in the first quarter, down from 3.1 percent in the last three months of 2010.

Last week’s sell-off drove the price of U.S. crude oil below $100 from an April peak of more than $113. Prices have been volatile since then, and further weakness is possible.

“What happened in commodity markets last week was not surprising at all, and more weakness in the near term wouldn’t be that surprising either,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a recent research note.