Commodities in middle of rare 'super-cycle'

IFAonline | 30 Mar 2007 | 09:00
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  • By Scott Sinclair
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Commodities should be on every investor’s wish lists as the sector is in the middle of a ‘super cycle’ that occurs only once every 50 years, according to BlackRock Merrill Lynch.

The firm says the cycles are driven by huge structural changes in the global economy – such as the European industrial revolution – and that strong growth and industrialisation in countries such as India and China has signaled the start of another.

BlackRock says the sector is flourishing as a result because of strong commodity demand and muted supply growth.

In addition, the company says merger and acquisition activity has the potential to further enhance performance.

The firm says stockpiles of many metals are at their lowest levels for a decade, while price/earnings ratios of many major equities are lower than they have been for years and company management is returning record levels of surplus capital to shareholders.

Similar fundamentals exist in the gold sector, it claims, with resurgent jewelry demand, an increase in investor appetite, falling goldmine production, and the potential for Middle East and Asian Central Banks to increase their gold exposure in order to diversify from their $US holdings.

Evy Hambro, manager of BlackRock’s MLIIF World Mining fund and World Gold fund, says: “The long term case for investment in the natural resources sector is strong and recent short-term moves have made valuations even more attractive.

“Easy access to finance, rapid escalation in new project costs, strong balance sheets and a shortage of organic growth opportunities are common place have resulted in an environment where M&A activity may thrive.

“Last year was a record year for mining merger and acquisitions and we would anticipate many of these trends to continue through 2007.”

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Scott Sinclair on 020 7034 2636 or email scott.sinclair@incisivemedia.com

IFAonline

Categories: Investment

Topics: Gold|mergers|commodities

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