Commodities Back as Gurus Eschew Financial Assets

By Claudia Carpenter, Anna Stablum and Yi Tian

Jan. 4 (Bloomberg) -- Raw materials may return more than financial assets for the first time in three years as the global economy rebounds, according to Bloomberg surveys and 2009’s most accurate commodity forecasters.

Oil, corn, gold and palladium will advance as much as 17 percent this year, the analysts said. The S&P GSCI Enhanced Total Return Index of 24 commodities will gain 17.5 percent, Goldman Sachs Group Inc. estimates. That’ll beat the 11 percent jump in the Standard & Poor’s 500 Index and the 2.8 percent return on the benchmark U.S. 10-year note, forecasts compiled by Bloomberg show.

“Demand is growing on a global basis,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors in Cincinnati and predicted the collapse in prices in 2008. “Commodities are a great place to be to gain exposure to the growth that’s coming out of emerging markets.” Sorrentino’s largest commodity holdings are in coal and natural gas.

Commodities will keep rising after the Reuters/Jefferies CRB Index’s best year since 1979 because China is leading the world out of the first global recession since World War II. Peoples’ Bank of China Governor Zhou Xiaochuan said Dec. 31 the central bank will keep its monetary policy “moderately loose” after the government’s $586 billion stimulus increased demand for Australia’s coal, Brazil’s iron ore and Chile’s copper.

The 3.1 percent global expansion forecast by the International Monetary Fund in October also means demand for food will rise. A United Nations index of 55 food commodities advanced for four consecutive months through November. Shortages sparked riots from Haiti to Egypt in 2008.

Curbing Inflation

Commodities are forecast to beat bonds and stocks this year as faster growth and higher prices stoke expectations that central banks will raise interest rates to curb inflation. Goldman forecast on Dec. 3 that the S&P GSCI Enhanced Total Return Index would gain 17.5 percent in 12 months, led by advances of 25 percent in energy and 15 percent in metals.

The 10-year note will yield 3.97 percent in the fourth quarter, according to the Bloomberg weighted average of 61 analyst estimates. That means a 2.8 percent return through the end of the year, Bloomberg data show. The note lost 9.7 percent last year, based on indexes from Bank of America Merrill Lynch.

The S&P 500 Index will end 2010 at 1,238 points, after gaining 23 percent last year, according to the median estimate of 13 strategists compiled by Bloomberg. Equity investors may have already anticipated this year’s economic expansion, with the S&P 500 at 1,115.10, or 24.3 times earnings, the most since 2002, according to Bloomberg data.

‘Add Clout’

“The U.S. recovery will add clout to commodity demand,” said Uday Narang, managing partner at Chichester Capital Management LP in London, whose fund returned 51 percent in the first 11 months of 2009 investing in metals, oil and agriculture. “The worst in the U.S. is over and the Asian emerging markets will take us higher.”

Crude oil will rise 17 percent to $92.50 a barrel by the fourth quarter, according to Societe Generale SA’s Mike Wittner, whose estimates last year were within 7.7 percent of market levels. Global consumption will increase and the Organization of Petroleum Exporting Countries is holding output flat, draining stockpiles, said Wittner, the bank’s London-based head of oil- market research.

Corn will average $4.60 a bushel this year, 11 percent more than the closing price on Dec. 31, said Emmanuel Jayet, head of agricultural research at Societe Generale in Paris and the most accurate forecaster based on estimates compiled by Bloomberg at the end of 2008. He expects the biggest shortfall in corn supply since the 2006-07 season after delays in the U.S. harvest.

Platinum, Palladium Markets

Palladium will average $425 an ounce, for a 4 percent gain, according to Robin Bhar, an analyst at Calyon in London and the winner of the London Bullion Market Association’s 2009 price survey. Platinum will average $1,550, or 6 percent more, according to Rene Hochreiter, an analyst at Johannesburg-based Allan Hochreiter (Pty) Ltd. and the best forecaster in the LBMA’s survey. Faster economic growth will mean more sales of cars, which use the metals in their autocatalysts, they said.

Not all commodities may repeat the gains of 2009. Copper, which rose 140 percent, will average $6,800 a metric ton in 2010, said Jochen Hitzfeld, an analyst at UniCredit SpA in Munich and the best forecaster for the metal in a January 2009 survey by Bloomberg. While that’s 31 percent more than last year’s average, it’s 8 percent below the Dec. 31 closing price.

Record Investment

Lead was the best industrial metal last year, gaining 143 percent. The metal will average $2,285 a ton this year, 31 percent above the 2009 average and 6 percent below last year’s closing price, according to Leon Westgate, an analyst at Standard Bank Group Ltd. in London and the best forecaster for lead in Bloomberg’s 2009 metals survey.

Investors poured about $60 billion into commodities through index-tracking and exchanged-traded funds and medium-term notes last year, and should add at least that much in 2010, according to a December survey of 250 investors by Barclays Capital. Commodities were the top choice of fund managers in a November poll by Royal Bank of Scotland Plc. Assets under management at commodity hedge funds expanded 5.7 percent to $64.3 billion in November, according to New York-based HedgeFund.net.

Those inflows are a warning to Michael Aronstein, the Oscar Gruss & Son Inc. strategist who predicted the 2008 collapse in commodities. The firm’s $320 million Marketfield Fund allocated as much as 45 percent of its assets to commodities and related equities last year and liquidated all those holdings by November. It’s now allocating more to U.S. equities.

‘Gathering More Risks’

“We began to feel the dollar is poised to get stronger and we just felt like the overall commodities trade was gathering more risks than we’re willing to undertake,” Aronstein said from New York. “The big unknown here is to what extent investors will remain enthusiastic.”

Barton Biggs, the 77-year-old manager of Traxis Partners LP, said he’s buying household-product manufacturers, drugmakers and computer companies. The hedge fund, which gained three times the industry average in 2009, is shorting raw materials.

The U.S. Dollar Index, which rose 4 percent last month, will be little changed this year, based on analyst estimates for the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc, adjusted to reflect the weightings in the index. The gauge fell 4.2 percent last year as the Federal Reserve more than doubled its balance sheet to $2.24 trillion in 15 months.

Gold Forecaster

Helen Henton, head of commodity research at Standard Chartered Plc in London, and the most accurate gold forecaster in a Bloomberg precious metals survey published a year ago, expects the metal to average $1,150 this year, or 5 percent more than the Dec. 31 closing price. Investors bought precious metals as a hedge against the falling dollar last year, sending gold up 24 percent in London.

“Those commodities with the best fundamentals will stand out in 2010,” said David Sutcliffe, a partner at Ebullio Capital Management LLP in Southend-On-Sea, England, which manages $150 million. Last year “was special because the rising tide lifted everything. Now that’s out of the way and we’ll enter an environment that separates the wheat from the chaff.”

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg