With US consumer price inflation hitting a 30-year high, investors are scrambling for ways to protect their portfolios against rising prices and falling currencies.
Many are responding by piling into commodity stocks, which are a traditional inflation hedge. Should you join them?
History shows the price of natural resources such as oil, gas, precious and industrial metals and agricultural products rise in value when inflation climbs.
The inflation-hedging power of commodities has been “strong and consistent” for more than three decades, according to research by fund manager Vanguard published in August.
It found that a 1 per cent rise in unexpected inflation (rather than standard, anticipated price growth) drives a 7 to 9 per cent increase in commodities.
That makes them superior to another inflation hedge, index-linked bonds, and shares generally, which “have a love-hate relationship” with inflation, says Sue Wang, an assistant portfolio manager at Vanguard’s Quantitative Equity Group.
“Commodities stand apart as a vehicle for hedging against inflation,” she says.
So far this year, the link has held firm. Energy and food prices rose sharply, while in May, copper hit an all-time high of more than $10,700 per tonne.
The S&P GSCI Commodity Index is up 73.68 per cent over the past year. That would have turned a $10,000 investment into $17,368, but investors cannot rely on commodities at every point in the investment cycle.
If you had invested $10,000 a decade ago, it would be worth just $7,629 today, even after the recent recovery.
When inflation strikes and currencies lose their purchasing power, tangible assets will save you by holding their value
Chaddy Kirbaj,
vice director, Swissquote Bank Dubai
Commodities are having a moment, but they are also notoriously cyclical. The past year has been terrific, but there is a danger that today’s investors are coming to the party too late.
Traders and investors love holding commodities in times of market turmoil, Chaddy Kirbaj, vice director at Swissquote Bank Dubai, says.
“When inflation strikes and currencies lose their purchasing power, tangible assets will save you by holding their value."
Yet, he is cautious today as some of the price drivers may be a temporary “reaction to the pandemic, global supply chain disruptions and bad weather in many countries”, and could soon reverse if economic growth slows.
Commodity price growth has been turbocharged by a range of factors, including fiscal and monetary stimulus, the post-vaccination economic rebound, US President Joe Biden’s $1.2 trillion infrastructure splurge and continuing high demand from China. Yet, several of these impulses are now fading.
The economic bounce back is slowing, Chinese demand is falling and central bankers are preparing to taper stimulus.
The post-Covid-19 spike in global mining stocks has gone into reverse. London-listed, globally diversified mining giant Rio Tinto fell 27.22 per cent over the past three months, while Anglo American dropped 20.47 per cent and BHP by 18.4 per cent.
Oil stocks remain buoyant though, as crude nudges up to $85 a barrel and natural gas prices hit record highs. The shock inflation figure has given every commodity fresh impetus, says Chris Beauchamp, chief market analyst at global trading platform IG.
Copper and gold were immediate beneficiaries, while iron ore, coal and crude have all hit long-term highs in recent weeks.
“Commodities as a group appear to have further to run now that inflation prints have started picking up, with no sign that supply has begun to respond in a meaningful fashion,” Mr Beauchamp says.
It has been a cracking year for commodities, with oil rising 60 per cent, cotton up 45 per cent and sugar up 25 per cent, but this raises an old question about chicken and eggs, David Jones, chief market strategist at Capital.com, says.
Commodities as a group appear to have further to run now that inflation prints have started picking up
Chris Beauchamp,
chief market analyst, IG
“Is inflation driving commodity prices, or are commodity prices driving inflation?”
The more pressing question for private investors is this. Can it continue? “If you take the central banks’ view that inflation is likely to be transitory, then a buyer of commodities now risks getting involved near the end of the current cycle,” Mr Jones says.
However, if you think inflation will persist – and the latest shock US inflation figure suggests it will – Mr Jones reckons upping your commodity exposure could boost returns and hedge your portfolio.
“Just don’t take for granted that the great run we have seen this year is a surefire bet,” he says.
There are no surefire bets in investing, but every investor should consider adding some commodity exposure to their portfolio if they do not already have it.
You may find that you do – for example, a fund tracking the FTSE 100 will be heavy on oil stocks such as BP and Royal Dutch Shell, and globally diversified mining giants.
Inflation is often described as a caged tiger, Devesh Mamtani, chief market strategist at Century Financial in Dubai, says. “Once released, it is tough to tame it again.”
Prices are likely to continue climbing as range-positive feedback loops come into force. For example, higher natural gas prices drive up the cost of fertilisers, which increases food prices. “What started as a supply chain issue is becoming broad-based inflation,” Mr Mamtani says.
Inflation is likely to climb higher, with the US producer price index up 8.3 per cent over the past year. In China, growth is at 10.7 per cent in the year to September.
Mr Mamtani suggests buying a spread of commodity exchange-traded funds (ETFs) to take advantage of the current market.
Inflation is a caged tiger. Once released, it is tough to tame it again
Devesh Mamtani,
chief market strategist, Century Financial
The Invesco DB Commodity Index Tracking Fund gives you diversified access to 14 of the most heavily traded physical commodities, including crude oil, natural gas, gold, silver, wheat, corn, sugar, copper, zinc, silver and aluminium. It is up 69.88 per cent over the past year.
Mr Mamtani tips Invesco DB Agriculture Fund, which invests in the futures of publicly traded agricultural commodities such as soybeans, wheat, corn, live cattle, sugar, coffee, cocoa and cotton.
Gold is a classic inflation hedge and Mr Mamtani recommends the SPDR Gold ETF. Those wanting precious metal diversification should consider the iShares Silver Trust and Aberdeen Standard Physical Precious Metals Basket Shares ETF, which tracks gold, silver, platinum and palladium bullion, he says.
Any investor who doubted whether gold is still an inflation hedge got their answer when the price jumped $30 after the US inflation figure was released, Fawad Razaqzada, market analyst at Think Markets, says.
“Bitcoin and Ethereum rallied, too, confirming suspicions that the cryptocurrency rally has been partly fuelled by rising inflation,” Mr Razaqzada says.
“Only invest as part of a diversified portfolio and consider focusing on defensive commodities that everyone needs, like water and food,” Mr Kirbaj says.
Commodities are cyclical and relatively high risk, so make sure you understand what you are getting into and invest as part of a diversified portfolio.
Spreading your money across dozens of companies through an ETF tracker makes more sense than buying individual stocks.
Inflation no longer looks transient. Nor does the investment case for commodities.
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- Mastery of audio-visual content creation.
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- Emerging technologies and VFX with AI and CGI.
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Crops that could be introduced to the UAE
1: Quinoa
2. Bathua
3. Amaranth
4. Pearl and finger millet
5. Sorghum
Have you been targeted?
Tuan Phan of SimplyFI.org lists five signs you have been mis-sold to:
1. Your pension fund has been placed inside an offshore insurance wrapper with a hefty upfront commission.
2. The money has been transferred into a structured note. These products have high upfront, recurring commission and should never be in a pension account.
3. You have also been sold investment funds with an upfront initial charge of around 5 per cent. ETFs, for example, have no upfront charges.
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5. Total annual management cost for your pension account is 2 per cent or more, including platform, underlying fund and advice charges.
The BIO:
He became the first Emirati to climb Mount Everest in 2011, from the south section in Nepal
He ascended Mount Everest the next year from the more treacherous north Tibetan side
By 2015, he had completed the Explorers Grand Slam
Last year, he conquered K2, the world’s second-highest mountain located on the Pakistan-Chinese border
He carries dried camel meat, dried dates and a wheat mixture for the final summit push
His new goal is to climb 14 peaks that are more than 8,000 metres above sea level
Silent Hill f
Publisher: Konami
Platforms: PlayStation 5, Xbox Series X/S, PC
Rating: 4.5/5
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Tailors and retailers miss out on back-to-school rush
Tailors and retailers across the city said it was an ominous start to what is usually a busy season for sales.
With many parents opting to continue home learning for their children, the usual rush to buy school uniforms was muted this year.
“So far we have taken about 70 to 80 orders for items like shirts and trousers,” said Vikram Attrai, manager at Stallion Bespoke Tailors in Dubai.
“Last year in the same period we had about 200 orders and lots of demand.
“We custom fit uniform pieces and use materials such as cotton, wool and cashmere.
“Depending on size, a white shirt with logo is priced at about Dh100 to Dh150 and shorts, trousers, skirts and dresses cost between Dh150 to Dh250 a piece.”
A spokesman for Threads, a uniform shop based in Times Square Centre Dubai, said customer footfall had slowed down dramatically over the past few months.
“Now parents have the option to keep children doing online learning they don’t need uniforms so it has quietened down.”
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Chelsea 3 (Abraham 11', 17', 74')
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Stars: Ajay Devgn, Kareena Kapoor Khan, Ranveer Singh, Akshay Kumar, Tiger Shroff, Deepika Padukone
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Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
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The specs
Engine: 1.6-litre 4-cyl turbo
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Price: from Dh130,000
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Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
UAE currency: the story behind the money in your pockets
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
ETFs explained
Exhchange traded funds are bought and sold like shares, but operate as index-tracking funds, passively following their chosen indices, such as the S&P 500, FTSE 100 and the FTSE All World, plus a vast range of smaller exchanges and commodities, such as gold, silver, copper sugar, coffee and oil.
ETFs have zero upfront fees and annual charges as low as 0.07 per cent a year, which means you get to keep more of your returns, as actively managed funds can charge as much as 1.5 per cent a year.
There are thousands to choose from, with the five biggest providers BlackRock’s iShares range, Vanguard, State Street Global Advisors SPDR ETFs, Deutsche Bank AWM X-trackers and Invesco PowerShares.
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The specs
Engine: 2.0-litre 4-cyl, 48V hybrid
Transmission: eight-speed automatic
Power: 325bhp
Torque: 450Nm
Price: Dh359,000
On sale: now
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Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
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iPad Pro
11" - $799 (64GB)
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Uefa Nations League
League A:
Germany, Portugal, Belgium, Spain, France, England, Switzerland, Italy, Poland, Iceland, Croatia, Netherlands
League B:
Austria, Wales, Russia, Slovakia, Sweden, Ukraine, Republic of Ireland, Bosnia-Herzegovina, Northern Ireland, Denmark, Czech Republic, Turkey
League C:
Hungary, Romania, Scotland, Slovenia, Greece, Serbia, Albania, Norway, Montenegro, Israel, Bulgaria, Finland, Cyprus, Estonia, Lithuania
League D:
Azerbaijan, Macedonia, Belarus, Georgia, Armenia, Latvia, Faroe Islands, Luxembourg, Kazakhstan, Moldova, Liechtenstein, Malta, Andorra, Kosovo, San Marino, Gibraltar
UAE%20v%20West%20Indies
%3Cp%3EFirst%20ODI%20-%20Sunday%2C%20June%204%20%0D%3Cbr%3ESecond%20ODI%20-%20Tuesday%2C%20June%206%20%0D%3Cbr%3EThird%20ODI%20-%20Friday%2C%20June%209%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3EMatches%20at%20Sharjah%20Cricket%20Stadium.%20All%20games%20start%20at%204.30pm%0D%3Cbr%3E%0D%3Cbr%3E%3Cstrong%3EUAE%20squad%3C%2Fstrong%3E%0D%3Cbr%3EMuhammad%20Waseem%20(captain)%2C%20Aayan%20Khan%2C%20Adithya%20Shetty%2C%20Ali%20Naseer%2C%20Ansh%20Tandon%2C%20Aryansh%20Sharma%2C%20Asif%20Khan%2C%20Basil%20Hameed%2C%20Ethan%20D%E2%80%99Souza%2C%20Fahad%20Nawaz%2C%20Jonathan%20Figy%2C%20Junaid%20Siddique%2C%20Karthik%20Meiyappan%2C%20Lovepreet%20Singh%2C%20Matiullah%2C%20Mohammed%20Faraazuddin%2C%20Muhammad%20Jawadullah%2C%20Rameez%20Shahzad%2C%20Rohan%20Mustafa%2C%20Sanchit%20Sharma%2C%20Vriitya%20Aravind%2C%20Zahoor%20Khan%0D%3C%2Fp%3E%0A
You may remember …
Robbie Keane (Atletico de Kolkata) The Irish striker is, along with his former Spurs teammate Dimitar Berbatov, the headline figure in this season’s ISL, having joined defending champions ATK. His grand entrance after arrival from Major League Soccer in the US will be delayed by three games, though, due to a knee injury.
Dimitar Berbatov (Kerala Blasters) Word has it that Rene Meulensteen, the Kerala manager, plans to deploy his Bulgarian star in central midfield. The idea of Berbatov as an all-action, box-to-box midfielder, might jar with Spurs and Manchester United supporters, who more likely recall an always-languid, often-lazy striker.
Wes Brown (Kerala Blasters) Revived his playing career last season to help out at Blackburn Rovers, where he was also a coach. Since then, the 23-cap England centre back, who is now 38, has been reunited with the former Manchester United assistant coach Meulensteen, after signing for Kerala.
Andre Bikey (Jamshedpur) The Cameroonian defender is onto the 17th club of a career has taken him to Spain, Portugal, Russia, the UK, Greece, and now India. He is still only 32, so there is plenty of time to add to that tally, too. Scored goals against Liverpool and Chelsea during his time with Reading in England.
Emiliano Alfaro (Pune City) The Uruguayan striker has played for Liverpool – the Montevideo one, rather than the better-known side in England – and Lazio in Italy. He was prolific for a season at Al Wasl in the Arabian Gulf League in 2012/13. He returned for one season with Fujairah, whom he left to join Pune.
RESULTS
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UAE currency: the story behind the money in your pockets
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Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
Match info
Athletic Bilbao 0
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GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
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TO A LAND UNKNOWN
Director: Mahdi Fleifel
Starring: Mahmoud Bakri, Aram Sabbah, Mohammad Alsurafa
Rating: 4.5/5
