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Recent weakness may drive investors to commodities, says Credit Suisse

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Recent heightened levels of uncertainty have highlighted the need for diversification and may continue to drive investors in search of alternative asset classes, including commodities.

Andrew Karsh, co-lead portfolio manager for the Credit Suisse total commodity return strategy, says the last couple of years have seen macro factors dominate across many asset classes, including commodities.

As market uncertainty declines, Credit Suisse expects commodity-specific factors to re-emerge as a driving factor of prices which should cause inter-commodity correlations to decrease while simultaneously reducing correlations with other asset classes such as equities and fixed income.

Co-lead portfolio manager Christopher Burton adds: "Commodities have tended to react to the same sets of risk factors differently than other asset classes. For example, while unexpected inflation can destroy bond returns and potentially show that equities are no place to hide, it may drive commodity prices significantly higher. While inflation expectations continue to appear to be anchored at unusually low levels near term, the spectre of higher inflation lurks in the distance. From a strategic standpoint, we continue to believe commodities play an important role in investor portfolios throughout market cycles."

The Dow Jones-UBS Commodity Index Total Return declined by 7.28 per cent in January.

China’s announcement of its plans to tighten bank lending across the economy caused declines in many of the metals and energy commodities, with sinc as the worst performer in January, down 17.99 per cent.

Lead and oil were also at the bottom of the chart, while nickel stayed fairly flat as labour disputes maintained prices relative to other metals.

Agriculture experienced the greatest loss as a result of corn and soybean prices hurt by the US Department of Agriculture’s production estimates.

Sugar, the only commodity with gains in January, continued its positive streak from December and gained 10.95 per cent due to lower than expected supplies.

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