A gloomy economic outlook is leading analysts to favour defensive commodities over cyclicals this year. Hussein Allidina, the head of commodities at Morgan Stanley in New York, said gold, agriculture and livestock were his top picks, and here he explains why.
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What do investors need to keep in mind when building portfolios this year?
Given a slower GDP outlook this year, investors need to be more selective about exposure. We believe commodities with constrained supply will outperform.
Gold has slumped more than 10 per cent this month, trading at around US$1,600 an ounce. Do you still see upside in the precious metal?
Many in the market questioned whether the movement signalled the end of the 10-year bull market for gold - we believe it does not. The defensive nature of gold should continue to support investment demand as investors look for safe havens. [Mr Allidina forecasts gold to touch $2,200 this year.]
Corn had a strong run last year. Do you expect the trend to replicate this year?
Tight US and global fundamentals leave us constructive on corn at least through the first quarter as larger livestock herds suggest higher feed demand. The development of dry weather in Argentina and Southern Brazil also bodes poorly for yields.
What is your view on soybeans? Prices rose 5.9 per cent last month.
Soybean has been supported by concerns over dry and warm weather in South America and competition from corn. Dry weather in Argentina is expected to delay double-crop soybean planting, while a lack of soil moisture could also reduce final bean yields. Similarly in Brazil, December rainfall [declined] 36 per cent and 74 per cent year-on year in the states of Mato Grosso do Sul and Paraná. The two states together produce about one fourth of Brazil's soybean crop.
Energy was the second-best performer after gold last year, with Brent up 17.5 per cent and currently trading just above $102 a barrel. Where do you see the oil price going this year?
Tight fundamentals are likely to erode this year, given recovering supply and slowing demand. We expect oil to fall in the first half to as low as $85 to $90 a barrel.
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