Markets

Commodities spearhead global recovery

By Debarati Roy (China Daily)
Updated: 2011-01-03 10:24

NEW YORK - Commodities led gains last year as stocks, bonds, the dollar and raw materials rose together for the first time since 2005 after the global economic recovery proved resilient.

The Thomson Reuters/Jefferies CRB index of 19 raw materials gained 17 percent in 2010. The MSCI All Country World Index of stocks rose 13 percent with dividends reinvested. Global bonds returned 4.88 percent, based on Bank of America Merrill Lynch's Global Broad Market Index. The US Dollar Index, a gauge against six counterparts, added 1.5 percent. The CRB outpaced the other measures for the first time since 2007.

Investors snapped up raw materials as China's growth, the fastest of any major economy, spurred record demand for sugar and soybeans and rising imports of copper. Financial assets were also bolstered by low global interest rates and as the Federal Reserve pumped $600 billion into the US economy, the world's largest.

"We had support from fiscal and monetary policy that propped up prices of most asset classes," said Walter "Bucky" Hellwig, who helps oversee $17 billion at BB&T Wealth Management in Birmingham, Alabama, US. "There is also more certainty that we will not hit the double dip, and that created fundamental demand."

Commodity prices beat gains in stocks, bonds and the dollar last year as China led the recovery from the first global recession since World War II. 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 $24 billion in commodities at Pacific Investment Management Co in Newport Beach, California. "You've had strong growth from China that put a bid into copper, and global crop problems cause huge rallies."

Gains in the CRB were led by cotton, which surged 92 percent last year, reaching a record Dec 21, on speculation that supply would fail to keep pace with rising demand. Silver, the precious metal most used in industry, jumped 84 percent as it attracted investors betting on both faster and slower economic growth. Corn added 52 percent and coffee climbed to a 13-year high as inventories shrank and bad weather threatened crops in South America.

While China's growth will be about 9 percent this year, that will still be three times the rate of the US and six the times the speed of the eurozone, based on Bloomberg surveys of as many as 69 economists.

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"There is no doubt that demand is coming from China, and there are other emerging markets where demand grew," said James Paulsen, who oversees $350 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."

Raw materials rebounded in the last two quarters, with the CRB surging 29 percent 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 percent.

Seventeen of 19 commodities tracked by the CRB rose last year. Natural gas lost 21 percent and cocoa fell 7.7 percent.

In December, the commodity gauge jumped 10 percent. That compares with a 7.3 percent advance for the MSCI All Country World Index and a 0.7 percent drop for bonds. The US Dollar Index lost 2.1 percent. The Standard & Poor's 500 Index added 6.7 percent with dividends reinvested, and returned 15 percent in 2010.

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 capped the biggest December rally since 1999.

Bloomberg News