US investment bank Citi has touted industrial metals such as zinc and copper as a potential haven from the turbulence rattling global markets. “The recent sell-off in rates and equities, and spike in VIX, presents an opportunity to rotate into industrial metals,” Citi said Tuesday.
The rout began at the end of last week, after a set of data pointing to robust US wage growth stoked concerns about rising inflation and prompted a sell-off in government bonds that had already been brewing this year.
Metals benefit more than bonds during periods of solid global growth and rising inflationary pressure, Citi said. Metals are also more closely correlated to the economic cycle than oil.
“We find that over at least the past 25 years industrial metals returns have had a notably stronger positive correlation with global growth . . . than crude oil and broader commodity index returns,” the bank said.
The bank is most bullish on zinc and copper. It forecasts that industrial metals could outperform equities on a total return basis over the next two years by around 3 per cent per year. Metals have returned 22 per cent over the past year, according to the S&P GSCI Industrial Metals Total Return index.
Industrial metals were not immune to the sell-off in markets over recent days, though. After a brief rally on Monday, prices fell across the board on Tuesday. Copper was down 0.4 per cent at $7,100 a tonne in morning trading and nickel fell 1.4 per cent at $13,475 a tonne.
The traditional haven, gold, inched up 0.3 per cent to trade at $1,342.95 per troy ounce.
Source: FT.com
