Investment commodities 'better than stocks'

Invest in them by the basket, though, to limit risk, analysts told a roundtable seminar dubbed "Commodities Now More Attractive Than Stocks".

During these tough times com¬modities are the safer bet and offer better returns than stocks and bonds as they are essential physical prod¬ucts, said Teera Phutrakul, executive chairman of Finansa Asset Management.

Commodities have provided bet¬ter returns than stocks and bonds for a long time, he said, citing the Rogers International Commodity Index (RICI), which yielded an annual return of 15.4 per cent between its inception in July 1998 and this July, well above the 9.8 per cent of the Stock Exchange of Thailand (SET) during the same period.

What's more, RICI's commodities had only 18.4percent volatility, compared to the 30 per cent of the SET index.

Correlation between the SET index and RICI is low, he said, illus¬trating how commodities can be used as riskdiversifiers.

RICI is a composite USdollarbased index designed by Jim Rogers and known as one of the most diverse commodity indexes, being calculat¬ed from 35 commodities ranging from agriculture to energy and metal products on 11 international exchanges in five countries.

Teera suggested both soft and hard commodities for the least risk.

Hard commodities are limited resources and typically mined, such as oil, coal, gold and other metals; soft commodities are farmed, like wheat, rice, rubber and livestock.

He recommended that commodities should account for 10 per cent of a portfolio, leaving 15 per cent in stocks and the remaining 75 per cent in bonds and alternative investment.

Commodities are the rising stars as their prices are buoyed by limited supply and higher demand from a rising population, he said.

The United Nations estimates that the world population will increase from 6 billion at present to 9.15 billion in 2050.

Teera did warn Thai investors to take currency risk into account as all commodities were quoted in US dollars, which were weakening.

Supakorn Soontornkit, senior executive vice president of MFC Asset Management, called commodities the investment theme of the decade as supply declined or grew at a slower pace than demand.

The price of oil will move in a range of US$100 (Bt3,390) to $110 a barrel if the northern winter sets in late but will probably surge to $125 if it comes early, he forecast.

It is possible to see gold at $1,050 an ounce by yearend, as predicted by Goldman Sachs, as the US bailout package depresses the denomination value, he said.

Typically prices of commodities, including gold, soar when the US dollar is weak as people scoop up nondollar assets.

Theeranat Rujimethapass, head of mutual and private funds at Tisco Asset Management, said he was bullish over commodities.

"They are a new asset class that investors should have in their portfolios," he said.

"It's risky not to: diversification mitigates that."

He said he preferred soft commodities as their prices still lagged behind those of hard commodities and because "people consume and the population is rising, as is demand for alternative energy such as biofuel and gasohol".

He agreed that diversity was of the essence as the prices of some products might increase while those of others declined, but he said what weight you gave to commodities in your portfolio depended on your appetite for risk and your age.

He saw oil sticking at $120$130 for the rest of this year.

"Gold is a currencyequivalent asset. The US dollar is depreciating, and central banks should be diversifying into other currencies and gold. If they agree, it will be selling for $1,000 an ounce," he said.