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OTTAWA -- April`s 6.2% plunge in Scotiabank`s commodity index likely marks a bottom in the cycle, with prices expected to be well-supported during the seasonally slower summer months before rallying further in the fall, says analyst Patricia Mohr.
While the market frets that recent gains in many commodity prices will be lost if Chinese stockpiling runs out of steam, Ms. Mohr said three key factors should keep prices above recent lows:
• Even if revival in the U.S. economy is slow in the second half of 2009, demand for resources will be driven by the "Asian tigers," whose fiscal stimulus measures are much higher as a percentage of GDP than in the West.
• The "reflation trade" is drawing investment managers and hedge funds into commodity investments expecting price gains and rising inflation as the world economy grows again over the next two to three years.
• The growing interest in hard assets rather than paper currencies as evidenced, for example, by Chinese and other Asian utilities using new capital to lock up guaranteed supplies of uranium through equity investments in Canadian miners.
"The rebound in China`s industrial activity is actually quite real," Ms. Mohr said. "While investor interest in commodities and China`s demand may taper off seasonally in the late summer, prices should be supported above recent lows, and will likely rally again in the fall."
Falling values for coal and other commodities whose price is settled by contract weighed on Scotiabank`s index in April, despite rallies in commodities like copper and oil that are traded daily on market exchanges.
Read the full article here.
While the market frets that recent gains in many commodity prices will be lost if Chinese stockpiling runs out of steam, Ms. Mohr said three key factors should keep prices above recent lows:
• Even if revival in the U.S. economy is slow in the second half of 2009, demand for resources will be driven by the "Asian tigers," whose fiscal stimulus measures are much higher as a percentage of GDP than in the West.
• The "reflation trade" is drawing investment managers and hedge funds into commodity investments expecting price gains and rising inflation as the world economy grows again over the next two to three years.
• The growing interest in hard assets rather than paper currencies as evidenced, for example, by Chinese and other Asian utilities using new capital to lock up guaranteed supplies of uranium through equity investments in Canadian miners.
"The rebound in China`s industrial activity is actually quite real," Ms. Mohr said. "While investor interest in commodities and China`s demand may taper off seasonally in the late summer, prices should be supported above recent lows, and will likely rally again in the fall."
Falling values for coal and other commodities whose price is settled by contract weighed on Scotiabank`s index in April, despite rallies in commodities like copper and oil that are traded daily on market exchanges.
Read the full article here.