This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Why has the gap between the S&P 500 and commodity prices widened?
According to Katusa Research, commodity prices have fallen to a 47-year low when compared to the S&P 500. Much of this could be explained by a rise in the efficiency of mining, enabling some S&P 500 firms to increase their margins while driving commodity prices lower. That’s good for stock investors – and good for the consumer.
The question now is whether this trend can continue, or if the markets are about to turn. The answer could depend on China.
To what extent has China’s growth affected global commodity prices?
It seems that China has effectively sponsored the extraction of commodities and conversion of ores, with companies benefitting from cheap debt, labour and electricity over the last few years. This may have kept prices lower than they could have been over the last five years.
But with China now on an anti-pollution drive, is the era of state-funded production coming to an end? If so, it could have consequences for vanadium, titanium, copper, zinc, nickel and other commodities.
What effect will changes in South Africa have on commodity markets?
Cyril Ramaphosa, the former general secretary of the National Union of Mineworkers, and current deputy president of South Africa, was recently appointed president of the African National Congress (ANC). That could have a big impact on South Africa’s commodities industry, and Jacob Zuma’s tenure as president.
With the rand (ZAR) already on the rise against the US dollar (USD), it seems possible that Ramaphosa – not known to be corrupt – could usher in a period of great change. But when should we expect this to happen?
What effect should the recent rise of the rand (ZAR) against the US dollar (USD) have on producers and prices?
In the short term, the rise in the rand could serve to pull back the value of dollar earnings and earnings in other currencies. However, it could bring longer term benefits, some of which have the potential to make for a much more business friendly environment.
The question really is not when change is coming, but how quickly it will arrive. It could all depend on how quickly the ANC can reform itself.
What are the best commodities and stocks to watch in 2018?
Watch the video above to discover John’s top commodity and share picks for 2018, as he explores the potential effects of advances in battery technology and President Donald Trump’s infrastructure reforms on the markets.