Fund managers are wary of pumping more money into commodity markets after the sector's biggest quarterly decline since the global financial crisis, but retain a cautiously bullish long-term price outlook. Some funds with exposure to the asset class are expected to increase their stakes over the next year, hoping that prices will rise, although fear of market volatility may discourage some, analysts said on Friday.
But even as institutional investors are expected to turn overweight on the asset class through June 2012, they remain less bullish than they were in 2009 and 2010, analysts at Credit Suisse said. "The majority of investors believe commodity prices will rise over the coming 12 months," the investment bank and asset manager said in a research note, citing a survey of nearly 400 institutional investors. "However, short-term conviction is weak and most investors are uncertain about near-term direction."
Credit Suisse said worries about large price swings topped the list of concerns in the survey, with 55 percent of the respondents expecting volatility to rise over the next year. Crude oil prices in London rose from below $100 a barrel in January to the year's high above $127 in April before falling back to just above $100 in June. Some commodities have seen sharper moves within a shorter time. US corn for instance, hit record highs of nearly $8 a bushel in early June before falling about 20 percent by the month's end on Thursday.
Credit Suisse issued its report as commodity markets began opened July trading on a weak note after the Reuters-Jefferies CRB index ended the second quarter down 6 percent on Thursday. It was the sharpest slide in this global commodities benchmark, which tracks 19 US futures markets, since the fourth quarter of 2008, when financial markets were reeling from the collapse of Lehman Brothers.
The index fell again on Friday - the start of the new quarter - led by oil and the second consecutive plunge in US corn futures after Goldman Sachs slashed its price outlook for grains. Of the near 400 commodity investors it surveyed, Credit Suisse said 40 percent expected to turn overweight on the sector over the coming year while 36 percent expected to become neutral. Currently, only 29 percent of those investors are overweight commodities and 36 percent are underweight. But the survey's results were a moderation compared to the polls it carried out in 2009 and 2010, when up to 50 percent of the respondents claimed to be overweight commodities then, Credit Suisse said.
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