Beneath the Oil Frenzy

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Some so-called laggards in the commodity supercycle - potash, iron ore and the mining majors - continue to dominate the rankings for 12-month returns from listed stocks.

Some so-called laggards in the commodity supercycle - potash, iron ore and the mining majors - continue to dominate the rankings for 12-month returns from listed stocks. Some of the better known plays - gold, oil, copper and aluminium - are now the real laggards along with other subsectors as global investors continue to rotate portfolio flows, dabbling on the fringes of what could be a mania.

The general commodities supercycle has been in place since early 2002 and while the earnings-measured value of listed stocks is not yet historically sensitive - with the exception of listed gold stocks - investors and speculators are today far more savvy about the resources universe than seven years ago. A growing number of institutional investors recognise commodities as a discrete "asset class".

...Over the past five years, the gold price has risen from around $350 to over $1,000 an ounce at one point. Gold bullion is now in a correction and consolidation phase, like other high-beta plays, particularly silver, and agricultural futures. These are commodity investments that tend to outperform during times of crisis, or perceived crisis. Again, over the past five years, the Dow Jones Industrial Index, possibly the most-watched stock barometer in the world, has increased by just 45%. Compare this return with some of the so-called later cycle commodity plays, where investors have increasingly recognised idiosyncratic industry structures and demonstrable intrinsic pricing power. Over the past five years, the quoted stock price of Vale (RIO US, USD 41.01), the world's biggest player in seaborne iron ore, has increased by 1,001%...

Recent portfolio flows and rotations among listed stocks also continue to favour platinum names - where the fundamentals are without controversy - and also very minor metal tin with well-known recent supply squeezes from the world's two biggest producers, China and Indonesia. Portfolio flows have also been favourable lately for stocks listed in oil and also oil sands, a specific related play, with assets located mainly in Canada.

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