The ageless Mark Mobius of Franklin Templeton Investments has some investment advice going into 2018. For emerging markets, the number one pick is China. For big asset picks: it’s commodities. “One of my bets is commodities,” he said in a Bloomberg interview on Wednesday. “It’s time to get back in, but it is not just a China story. It is a global story.”
Oil is up threefold from its bottom a year and a half ago, when some experts were pondering $25 a barrel as recently as May.
Even though Mobius does not think the commodity story is a Chinese one — U.S. demand is a major driver, along with nearly all of Asia — China demand is a key barometer for a number of hotly traded commodities like iron ore, oil, and soybeans.
Strong momentum at the end of the year is often indicative of continued strength at the start of the year. Here’s where that demand has been.
China’s commodities imports rose in November after a seasonal fall in October due to holidays only. Imports of crude oil, copper, iron ore, natural gas and coal grew by 19%, 32%, 19%, 13% and 4% month over month, respectively.
Annualized, China’s appetite for fuel is strong. Crude oil and natural gas imports rose 15% and 42%, respectively.
Copper and iron ore imports grew almost 5% and 3% on the year, keeping iron ore futures high.
If Chinese demand continues, and if Mobius is right that commodities have the support of U.S. and Asian demand in particular, then retail investors who want to play this space can look at commodity-linked ETFs. Most of them invest in futures contracts. Some of the well known ETF product lines, like the WisdomTree Continuous Commodity Fund (GCC) and the iShares S&P GSCI Commodity Index (GSG) have not performed well compared to oil. GCC is down over 37% since it launched in 2008 and GSG is down over 68% in the last 10 years. Both have not been big gainers this year.
Even pure-play ETFs like the iPath Crude Oil Return (OIL) fund is negative on the year, despite higher high prices.
The Global X Copper Miners (COPX) ETF is up 20.05% this year and their lithium ETF (LIT) is up even more, beating the market with a 55% gain year-to-date.
Source: Forbes
