Association of Investment Management Companies

The Association of Investment Management Companies had organized a press conference on March 27, 2009 at AYF Asset Place by inviting fund managers from Tisco Asset Management, Kasikorn Asset Management, and Ayudhya Fund Management to discuss the tendency of commodities investment throughout the year. 

According to Mr. Saharat Chudsuwan, head of investment management for mutual fund and private fund business at Tisco Asset Management, commodities remain promising asset classes amid the current global economic uncertainties. Of the four main commodities classes, precious metal (gold) and oil show the best sign of recovery while trends for agricultural commodities and hard metals remain flat. These two former asset classes are directly correlated with USD, which is forecasted to depreciate. This is partially due to the global downturn, the low interest rate, and the high injection of liquidity, which may consequently cause inflation as well as weaken USD further.

With anticipation that the global economy has hit the bottom, Asian countries like China or even Thailand should be able to get back on the track faster than those in developed countries due to the lesser degree of confrontation on financial difficulties. Specifically, Thai economy is expected to pick up by the 4th quarter of 2009 or the 1st quarter of the following year. Thus, investors may witness an upward correction in the oil prices along with the economy recovery. In fact, oil prices have showed sign of increasing after consecutive decrease in several months.

Additionally, Mr. Saharat said that gold tend to have low asset correlation with others, making them an attractive preference for portfolio investment in an attempt to diversify risks. If Asian economy soon recovers, these countries especially China will likely to increase consumption in gold to a large extent. China has already transferred some of their two million USD reserve to invest in gold, mainly due to the lost of confidence in U.S. currency which is likely to depreciate further. In short run, investors may only see a small move on the upside as gold prices have adjusted highly upward in the past months.

Similarly, Mr. Prasert Khanobthamchai, a first senior vice-president at Kasikorn Asset Management, said that oil and gold should continue to outperform other asset classes. Oil prices have once gone down as far as $ 38-40 per barrel, which is very close to production cost already. If the prices decrease any further, the OPEC countries might stop supplying oil into the world market. Therefore, it is likely that the oil price will move upward. Still, the prices will depend on how fast is the global recovery. In short term, investors are expected to see only a small sideway up as a result of the global downturn. 

Gold, on the other hand, has been an appealing commodities class for many investors during the past months. However, the increase in gold prices will have to rely on news that may affect prices as well as investor expectations. In long term, gold prices are expected to increase supplementary due to several supporting factors such as the high injection of liquidity of the U.S, which consequently may cause inflation and weaken USD further. Hence, gold will be an interesting option for investor who seeks a hedge against inflation.

Moreover, Mr. Prapas Tonpibulsuk, chief investment officer of Ayudhya Fund Management, said that gold may hit new high again since gold have many supporting factors that drive up the prices. With the depreciating USD and concern over future inflation, many investors have turned their attention to gold more and more. Also, several countries have transferred portion of their USD reserved to gold reserved, stimulating gold demand dramatically.  Thus, these may be the main reasons to push gold prices to even higher than new high. Yet, if the economy recuperates, investor may be more risk-taking by investing in riskier asset such as stocks and simultaneously minimizing their investment in gold. 

On the other hand, oil prices, now averaging $50 per barrel, are likely to move insignificantly up to $60-70 per barrel. However, comparing to $40 per barrel in the past months, the prices have increased appreciably. Therefore, if the economy pick up with an increasing signal of oil demand, oil prices may be stronger than expected. 

In conclusion, oil and gold still have room to move up. However, it all depends on each investor’s risk appetite, expected return and view on economy. If investors expect the financial market to remain volatile throughout the year, gold is an interesting alternative of investment. If investors have a contrary view, oil might be better. Investors must closely monitor news that may affect prices and adjust their investment portfolio accordingly with the situation. In other words, investors have to look for opportunity to make a profit especially when the global recovery will be delayed. In fact, commodities prices have followed a sharp fall during the past few years, thus investors should not be reluctant to sell when the prices move strongly upwards. In addition, commodities investors should be familiar with the industry and market statistic, and fully understand their investment asset in order to gain a better lasting return.  The common consensus is that extreme lows will sooner or latter reverse to the historic mean and the economy will, nevertheless, be recovered.