Bank recommends soft-commodity investments for second half

Anurag Mahesh, head of global investment and sales for the Asia-Pacific at Deutsche Bank Private Wealth Management, said prices of agricultural products were likely to rise, due to strong demand and limited supply. The global grain inventory has fallen to multiple-decade lows, because agricultural commodities have been in high demand for producing biofuels.

Because of this, investment in these products has provided better returns than any other investment vehicle despite rising inflation and low economic growth.

The bullish projection for soft commodities was made on the assumption that US and eurozone economies would not slip into recession and Asian countries would not experience stagflation.

The bank said the study of investment returns in different economic scenarios since 1929 found investment in commodities provided real yearly returns of 13.7 per cent in periods of low economic growth but high inflation. However, investment in equities, bonds and treasury bills gave negative returns of 1.9 per cent, 5 per cent and 1.7 per cent, respectively.

Anurag said prices of several agricultural products were far below their historic highs, indicating they had scope to scale new peaks. Industrial- and precious-metal prices, which are now below record highs, are also expected to surge, because of strong demand from emerging markets.

For example, the price of sugar is now 1,165-per-cent lower than its historic high, while coffee is 677-per-cent lower than its record and cocoa 339-per-cent below its peak.

"Real wheat and corn prices are presently cheaper than those in 1972, and their inventories are only 60 days, so the prices should be higher," Anurag said. He said investment in energy was not a good option, because the price of crude oil was already at record highs.

He expects energy prices to be flat as demand slows, due to the global economic slowdown. He predicts oil will be US$140 (Bt4,700) per barrel at the end of the year.

He also predicts inflation in the region will decline next year after governments end their oil subsidies and the oil price settles at a sustainable level.