Commoditiy supercycle?
Jeff curie, a macro analyst says ‘We are in the foothills of the Himalayas — the commodity supercycle has barely begun’. What is your outlook on commodities? Is a big bull run possible?
Three things can go in favour of a “commodity supercycle ” thesis:
- As the world is growing, a supply-demand imbalance can create a price surge.
- The world is shifting gradually from coal-based fuel to electrical and renewable energy. The use cases will be EVs and batteries, etc. This is creating a demand for materials like copper, lithium, nickel, and aluminum.
- Governments across the globe are also focusing on energy security, domestic manufacturing, and financial sovereignty. This is also creating more demand for commodities.
However, I personally would consume this narrative very cautiously. Why?
In times like these, where uncertainty is prevailing in the world due to the “Donald Trump Effect”, theories like these become popular. Every time there is a war, calamity, etc, commodity investors start building this narrative.
But we must look at “their view” from “our comfort.”
What’s in our portfolio? Mainly equity, right? Mutual funds and stocks. We can look at a commodity from the perspective of diversification, not as a high-return generator. Why? Because the long-term potential of investing in commodities is only limited.
On one side, where a top line index ETFs alone can generate a 12% return for us in a 5-7 year time horizon, quality individual stocks or value funds can yield higher returns. Can a commodity basket match these numbers? I don’t think so.
So in these times, my focus will be to accumulate more quality stocks and funds with only a limited commodity exposure (for diversification only).
