Commodities, often seen as a hedge against inflation and a stabiliser during market volatility, are gaining renewed attention from investors. With signs of a new commodity supercycle emerging, now may be the perfect time to take a closer look at this asset class.
Here’s why commodities should be on your investment radar!
The Dawn of a New Commodity Supercycle
A commodity supercycle is characterised by a prolonged period of rising prices, often lasting more than five years. According to Rick Mills of Ahead of the Herd, “The first green shoots of a new commodity supercycle, one based on raw materials for supplying the new electrified economy, are growing.” Several factors, including the energy transition, rising geopolitical tensions, and increased demand for key metals like copper, lithium, and nickel drive this emerging supercycle.
The transition to a lower-carbon economy requires substantial amounts of metals for renewable energy infrastructure, electric vehicles, and energy storage technologies. BloombergNEF projects that copper demand will grow by 53% to 39 million metric tons by 2040. This surge in demand, coupled with limited new supply, suggests that prices could continue to rise, making commodities a smart long-term investment choice.
Commodities as an Inflation Hedge
With inflation concerns looming, commodities have become a go-to asset class for investors seeking protection against rising prices. As noted by Bank of America, “Commodities such as oil and gold have long been considered reliable inflation hedges.” Unlike traditional financial assets, commodities are physical goods that tend to hold their value when inflation spikes, providing a natural hedge.
Bank of America predicts that commodities will outperform bonds for the rest of the decade, driven by structural factors such as deglobalisation, higher labor costs, and increased government spending on environmental initiatives. The bank expects commodities to generate annualised returns of 11%, far exceeding the 6% return from the Bloomberg Aggregate bond index. This makes commodities an attractive alternative to the 40% of a typical 60/40 portfolio reserved for bonds.
The Strategic Importance of Copper and Oil
Copper and oil are among the most critical commodities in the current market environment. BHP Group, the world’s second-biggest copper supplier, recently warned of a modest global surplus in the near term but projected a “fly-up pricing regime” later this decade due to a prolonged worldwide deficit. As BHP noted, “With the deficit conditions we anticipate in the final third of the 2020s, it’s possible that we enter into a ‘fly-up’ pricing regime, whereby prices disconnect from the cost curve due to systematic excess of demand over supply amid inadequate inventory levels.”
Similarly, oil presents a compelling investment opportunity. According to Citi Research, oil prices have dipped recently due to easing geopolitical risks and China’s economic slowdown. However, they caution that the market isn’t out of the woods yet, with hurricane season and ongoing tensions in North Africa and the Middle East posing risks to supply chains. As Citi stated, “The current market positioning is historically short, which could spur a rebound if Brent dips further, especially as it nears the $75 per barrel support level.”
Egypt’s Historic Wheat Tender: A Sign of Things to Come?
Agricultural commodities are also showing potential, as evidenced by Egypt’s recent historic tender for 3.8 million metric tons of wheat. Egypt’s Finance Minister Ahmed Kouchouk highlighted that “commodity prices are now at an almost four-year low,” presenting an opportunity for strategic buying. The country’s move to secure such a large quantity of wheat reflects broader concerns about supply chain disruptions and the need for stable commodity reserves. For investors, this signals that agricultural commodities could be poised for a rebound as global demand remains robust.
How Can You Access Commodities?
Accessing a diversified commodity portfolio has never been easier than through the AMC Portfolio Notes on Coherent Global Commodity Investment Portfolio listed on the JSE.
Ticker: CCMGCZ
ISIN: ZAE000316303
✅ Inflation Hedge: The diversified portfolio provides exposure to commodities that are positively correlated with inflation, protecting your investments from eroding purchasing power.
🌐 Expert Management: With decades of experience, the team actively manages a risk-balanced portfolio designed to maximise returns while mitigating risks associated with commodity investments.
⚡ Easy Access: Unlike traditional investment vehicles that require cumbersome paperwork and long waiting periods, the AMC allows you to invest directly in commodities through the JSE, providing a seamless and efficient investment experience.
📈 Strategic Exposure: Gain access to the commodities driving the next supercycle, from metals essential for the energy transition to oil and agricultural products. This portfolio is positioned to capitalise on the structural demand trends that are set to shape the future of the global economy.
Conclusion
The case for commodities is stronger than ever. Whether you’re looking to hedge against inflation, diversify your portfolio, or tap into the potential of a new supercycle, commodities offer unique advantages that traditional assets simply cannot match. As Bank of America aptly puts it, “The commodity bull is just starting.”