Summary List Placement
Commodity trades have paid off for UBS this year.
In an April 5 research note, UBS’s wealth management division highlighted that energy was up 22% while livestock was up 14%, both of which were commodity sectors that the division positively recommended at the start of the year.
Despite commodities having already had a good run, UBS isn’t ready to cash in and check out just yet.
The division still remains bullish, outlining the case for certain commodities to run higher in the recent note.
“Although prices are firmly up this year, we see another 10%–15% upside for the overall asset class over the next 6–12 months,” said UBS strategist, Dominic Schnider.
The bull case
UBS’s bull case is driven by two core components:
1) Global economic growth
UBS economists expect global economic growth to move strongly above trend from the second quarter of 2021 onwards.
“While near-term COVID-19 challenges remain, we now expect global economic activity to accelerate by a seasonally adjusted annual rate (SAAR) of around 7.4% q/q in 2Q21 and to stay above 6% — well above trend — until the year-end,” Schnider said.
2) Global mobility
As the vaccination rollout gathers pace, this will create a backdrop for market tightness across energy and base metals, the strategists said.
“Improved pricing power on the supply side, as well as the need for demand rationing in some commodities, should allow prices to overshoot,” Schnider said.
The proposed $2.25 trillion infrastructure package from President Joe Biden could also drive demand higher for natural resources over the long term.
The strategists highlight that around $1.3 trillion is allocated for highly commodity-intensive areas, such as housing, highways, transit, grid modernization and energy storage.
“A step up in US commodity consumption would be particularly supportive, such as for copper or steel, at a time when consumption in the rest of the world is accelerating and …read more
Source:: Business Insider