Commodity-shy investors should think again – Imara

Prudent saver-investors who in recent years have been happy to steer clear of the commodity sector may wish to take a closer look at long-term prospects

This advise comes from Chris Botha, senior fund manager at Imara Asset Management South Africa.

He admits resources have taken a beating and have under-performed the JSE All Share Index for four years, but a comeback could be on the cards by 2015; perhaps sooner.

Botha says the average salary-earner’s perceptions may be clouded by mining industry strikes and media focus in the recent past on supposedly slower Chinese demand for minerals, but on a two- to five-year view there are positive prospects.

He adds: "Gains could be sizeable for those who look beyond current uncertainty.

"After a long period of under-performance by resources, sector rotation can be expected.

"The time to buy is now because share prices will discount the effects of firmer commodity prices about 18 months in advance.”

He says some long-term strategic themes suggest weak commodity prices cannot be sustained and will firm.

Botha explains: "A reviving world economy is clearly good for commodities. Another positive is Chinese urbanisation. Another 500 million people will move to the cities in the next five years, bolstering demand for housing, roads, cars and appliances.”

His focus is on commodities whose prices are underpinned by industrial demand.

He notes: "Iron ore demand is down as Chinese steel-makers have taken old plants out of production. But supply should rebound by 2015 as new mills come on stream. Supply may not be enough to meet increased demand, pushing up prices – positive scenarios for South Africa’s iron ore exporters.”

Botha says gold’s prospects are more problematic as industrial demand is a minor factor in this sector. However, he believes platinum prospects are positive two to five years down the line, despite labour unrest.

"Reviving world car sales, Chinese car-buying, Chinese concerns about pollution and the need for catalytic converters are all positive for platinum,” he adds.

Though South Africans are well aware of high pump prices, he cautions that oil market movements are difficult to call.

He points out: "New oil and gas discoveries and upcoming US oil self-sufficiency could depress prices, but turmoil in the Middle East may have the opposite effect.”

In his view, strategic factors argue in favour of increased portfolio commitments to commodities. But even on a tide of stronger world growth, not all commodity ‘boats’ will rise at once.

Botha comments: "We’ll see volatility and uncertainty. A selective approach is needed. Strong nerves may be needed as well.”