RR Phantom
Location : Wasted Space
Job/hobbies : Cayman Islands Actuary
 |  Subject: Commodities beat stocks, bonds in 2010  Sun Jan 02, 2011 1:06 am | |
| Commodity prices beat gains in stocks, bonds and the US dollar this year as China, the biggest user of everything from cotton to copper to soybeans, led the recovery from the first global recession since World War II.
The Thomson Reuters/Jefferies CRB index of 19 raw materials gained 17 per cent through yesterday. The MSCI All Country World Index of stocks rose 13 per cent with dividends reinvested. Global bonds returned 4.7 per cent as of Dec. 30, based on Bank of America Merrill Lynch’s Global Broad Market Index.
The US Dollar Index, a gauge against six counterparts, added 1.5 per cent. The CRB outpaced the other measures for the first time since 2007.
Investors snapped up raw materials this year as China’s growth, the fastest of any major economy, spurred record demand for sugar and soybeans and rising imports of copper. At the same time, crops were ruined by Russia’s worst drought in at least a half century, flooding in Canada and parched fields in Kazakhstan, Europe and South America.
“This year has been incredibly strong,” said Nic Johnson, who helps manage about $US24 billion in commodities at Pacific Investment Management Co. “You’ve had strong growth from China that put a bid into copper, and global crop problems cause huge rallies.”
This was the first year since 2005 that commodities, stocks, bonds and the US dollar all rose as the global economic recovery proved resilient.
Cotton, silver
Gains in the CRB were led by cotton, which surged 92 per cent this year, reaching a record Dec. 21, on speculation that supply would fail to keep pace with rising demand in China. Silver, the precious metal most used in industry, jumped 84 per cent as it attracted investors betting on both faster and slower economic growth. Corn added 52 per cent and coffee climbed to a 13-year high as inventories shrunk and bad weather threatened crops in South America.
China’s economy expanded more than 10 per cent in 2010, according the median of 18 economists’ estimates compiled by Bloomberg. While growth will slow to 9 per cent in 2011 year, that will still be three times the rate of the US and six the times the speed of the euro region, based on Bloomberg surveys of as many as 69 economists.
“There is no doubt that demand is coming from China, and there are other emerging markets where demand grew,” said James Paulsen, who oversees $US350 billion as the chief investment strategist at Minneapolis-based Wells Capital Management. “Commodities have gone up because the economy was gearing up. It became a sustainable global economic recovery.”
Materials rebounded
Raw materials rebounded in the last two quarters, with the CRB surging 29 per cent since June 30. That’s the best second-half performance since the index debuted in late 1956. In the first six months, the gauge lost 8.8 per cent.
Seventeen of 19 commodities tracked by the CRB rose this year. Natural gas lost 21 per cent and cocoa fell 7.7 per cent.
In December, the commodity gauge jumped 10 per cent. That compares with a 7.3 per cent advance for the MSCI All Country World Index and a 0.7 per cent drop for bonds. The US Dollar Index lost 2.1 per cent. The Standard & Poor’s 500 Index added 6.7 per cent with dividends reinvested, and returned 15 per cent in 2010.
Returns for commodity investors may be lower than the spot CRB index suggests. The S&P GSCI Total Return Index, tracking the net amount received, rose 9 per cent this year. When longer- dated contracts cost more than those for immediate delivery, a market structure known as contango, investors pay a premium to maintain their holdings as positions expire.
Financial crisis
Stocks overcame the worst financial crisis since the 1930s as corporate profits exceeded estimates and central banks kept interest rates near record lows. Boeing, Home Depot and General Electric beat earnings estimates for at least the past four quarters.
Governments have taken unprecedented measures to spur growth and boost confidence, as concerns the debt crisis in Europe would derail the global recovery pushed the MSCI All World Index to a low of 262.64 on May 25. The index posted back- to-back monthly gains in September and October and is headed for the biggest December rally since 1999.
Advertisement: Story continues below
The MSCI All World Index of developed and emerging stocks reached 330.9 on Dec. 29, the highest since Sept. 2, 2008, before the collapse of Lehman Brothers Holdings Inc.
‘Honorable returns’
“It’s good to be crossing the finish line with honorable returns,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $US340 billion. “The double dip did not occur. The unemployment situation in the US, while not improving, did not deteriorate further. Globally, Europe was able to prevent a worst-case scenario.”
US Treasuries, benchmarks for borrowing costs around the world, returned 5.5 per cent this year as of Dec. 30, rebounding from a 3.7 per cent loss in 2009, Bank of America figures show.
Bonds rallied from January through August as the US economy threatened to slide back into a recession. They trimmed gains in the last four months of the year, sliding as Federal Reserve Chairman Ben S. Bernanke implemented a plan in November to pump $US600 billion into the market.
As of Dec. 30, Japanese bonds, the biggest debt market, returned 2.4 per cent in 2010 as the central bank cut its benchmark interest rate to “virtually zero.” The rally was more than double the 0.9 per cent gain in 2009, based on the Bank of America data.
Financial bailouts
Greece and Ireland, which sought financial bailouts this year, had the worst-performing bonds among the 26 sovereign markets compiled by the European Federation of Financial Analysts Societies and Bloomberg.
Corporate bonds worldwide returned 7.12 per cent this year as of Dec. 30, compared with 16.3 per cent in 2009, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The debt has lost 0.82 per cent in December, following a 1 per cent drop in November.
The securities are poised for the biggest quarterly decline since the three months ended September 2008.
The extra yield investors demand to own corporate bonds instead of government debt has declined to 169 basis points, or 1.69 percentage points, from 176 basis points on Dec. 31, 2009, the index data show. Spreads narrowed this month from 177 basis points on Nov. 30.
“Economies are up and some of the darkest fears of the pessimists did not come to fruition,” Creatura said. “The US and global economies, while they’re not firing on all cylinders, are moving forward.”
http://www.smh.com.au/business/markets/commodities-beat-stocks-bonds-in-2010-20110101-19c9u.html |
|
