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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Commodity market in SL

Commodity market in SL

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1Commodity market in SL Empty Commodity market in SL Fri Mar 15, 2013 3:06 pm

K&M


Senior Equity Analytic
Senior Equity Analytic
Sri Lanka should create a commodity market to broaden the investment market and i personally feel that creating it would largely benefit the Investor community to offset risk and to balance the portfolio with more assets.

On the other hand commodities can be great investment tool in a country where inflation is in a growing trend. By analyzing the past years it can be viewed that inflation has always been relatively high. here is what Im trying to say.. if you owned a 1 kilo of flour in 2007 which was only Rs 22 compared to today's price ranging from Rs 100-124 you can get an capital gain of more than 350%, when you include factors such as volume and macro outlook this relative measurement may vary by 30-40% but overall it would be much safer than our Mafia (stock) market.

2Commodity market in SL Empty Re: Commodity market in SL Fri Mar 15, 2013 3:19 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Conceptually fantastic idea but practically there might not be enough volatility to trade. Ofcourse it depends on the commodity.

Chances of prices going up is much more than them dropping right? For long term investments this might just work well.

3Commodity market in SL Empty Re: Commodity market in SL Fri Mar 15, 2013 7:15 pm

K&M


Senior Equity Analytic
Senior Equity Analytic
@slstock wrote:Conceptually fantastic idea but practically there might not be enough volatility to trade. Ofcourse it depends on the commodity.

Chances of prices going up is much more than them dropping right? For long term investments this might just work well.

Yes volatility will be very minimum, commodities can be used to offset against the more riskier assets. But as you said certain commodities may have some variations than others. Best example would be oil, one could price oil by just depending on the inflation but if they ignore geopolitical factors where in my view has more correlation than inflation could fall into major trouble.

In Sri Lanka if we take Tea as an example it has been a fluctuating commodity in the recent past. If people invested by purely basing inflation as a driver it would have made less profits since many other factors can hurt the commodity.

likewise Measures such inflation can be a great tool when you invest on Essential food items. One could have made good profits on commodities such as bread, rice, flour etc..

4Commodity market in SL Empty Re: Commodity market in SL Fri Mar 15, 2013 8:54 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Great bulrun in commodity is over. For hundreds if years commodity price in general has been going lower, which was reversed in last decades. Last decaed was complete exception, rise of tide lifted all boats. Not only comodities,also commodities currencies rose - see what happened to AUD,BRL. This has caused these countries to be highly uncompetitive in international markets- Autralia, South Africa, Brazil.

Primary reason for commodity bulrun was China factor which contribute more than 50% of global iron ore , copper ....etc. but, this trend is almost over, the exporters have felt the hit. China is trying to balance their growth, curtailing their biggest component of growth -investments. Moving towards more consumption oriented economy which is sustanable when they move to next level, otherwise they will be caught in middle income trap.
Read for further analysis:Breakout NATIONS,by Ruchira Sharma, MD of EM, Morgan Stanley


http://www.economist.com/node/3651836

5Commodity market in SL Empty Re: Commodity market in SL Fri Mar 15, 2013 10:02 pm

K&M


Senior Equity Analytic
Senior Equity Analytic
[quote="salt"]Great bulrun in commodity is over. For hundreds if years commodity price in general has been going lower, which was reversed in last decades. Last decaed was complete exception, rise of tide lifted all boats. Not only comodities,also commodities currencies rose - see what happened to AUD,BRL. This has caused these countries to be highly uncompetitive in international markets- Autralia, South Africa, Brazil.

Primary reason for commodity bulrun was China factor which contribute more than 50% of global iron ore , copper ....etc. but, this trend is almost over, the exporters have felt the hit. China is trying to balance their growth, curtailing their biggest component of growth -investments. Moving towards more consumption oriented economy which is sustanable when they move to next level, otherwise they will be caught in middle income trap.
Read for further analysis:Breakout NATIONS,by Ruchira Sharma, MD of EM, Morgan Stanley


One can certainly argue on your comment or analysis done by the by the Afro mentioned analyst, there are many commodity analyst who are bullish on certain commodities. Chinese may be hit by dampening demand for for there exports ( but figures showed increase in export this quarter) but if you take USA which has one of largest commodity markets may show you a different long term picture.

This is mainly because of the effect of Quantitative easing. Its virtually certain that once the asset purchasing programe started inflation will started to increase this general increase caused commodities to increase as well . Even Japan can be a very lucrative market in the long term for commodities. there large QE aimed to derail deflation and increase growth prospects. So there are certainly many opportunities its up to the investors to grab the right one.

6Commodity market in SL Empty Re: Commodity market in SL Sat Mar 16, 2013 4:58 pm

knockknobbler


Manager - Equity Analytics
Manager - Equity Analytics
K&M wrote:Sri Lanka should create a commodity market to broaden the investment market and i personally feel that creating it would largely benefit the Investor community to offset risk and to balance the portfolio with more assets.


Not knowledgeable at all , on this subject.
However , one question came to my mind .. ......without free currency conversion, can we think about creating a commodity market in Sri Lanka ?
Are you suggesting a market within Sri Lanka, trading in SL Rupees ?

7Commodity market in SL Empty Re: Commodity market in SL Sat Mar 16, 2013 7:30 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
http://www.imf.org/external/pubs/ft/wp/2012/wp12115.pdf

K&m,
Have a look on China's impact on many of global commodities. QE3 failed to raise prices as its earlier versions did. Market has already looked the bottom- fundamentals- no longer supports for high prices. Now, it's consolidation.

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