Strategists at JPMorgan Chase predict that commodities are likely to witness a price surge of up to 40% this year if investors elect to pour more money into natural resources in a timeframe characterized by increasing inflationary pressures. If such a price hike occurs, commodities will enter record-breaking price levels.
The JPMorgan strategists say that at the moment, investor allocations in the raw materials segment exceed the average allocations on record historically. However, the situation at the moment cannot be described as “overweight.” Consequently, there is still room for massive funding to flow into raw materials and trigger the surge in prices foreseen by the investment bank.
So far, the biggest surge in the price of commodities was witnessed in March when Russia invaded its neighbor Ukraine. This price boost happened for commodities ranging from wheat and fertilizers to crude oil. As a result, inflation around the world went up a notch, and the U.S. Federal Reserve was prompted to take action.
That mix of rising commodity prices, inflationary pressures and action by the Fed is causing investors to begin rethinking the balance of their investment portfolios. Many investors are likely to rethink their portfolios in favor of commodities or raw materials, according to the JPMorgan analysts. This is particularly likely given that the urge to hedge against inflation is strong, and commodities seem to be the likely asset class to offer that hedge.
In a note published on April 6, 2022, the strategists at JPMorgan Chase say that it is likely that the investments in commodities are likely to grow to 1% of all financial assets across the globe, and this allocation would be higher than the previous highest percentage recorded. If all other factors remain constant, that increase in investments allocated to commodities could result in a 30% to 40% rise in commodity prices, the JPMorgan strategists say.
When one considers what is currently happening, the prediction by JPMorgan doesn’t seem so outlandish. For example, Brent crude, the benchmark for oil prices around the world, has increased in excess of 30%. As a result, the price of Brent crude has hit a level that was last recorded in 2008. Energy, metals and crops have also seen massive price gains.
JPMorgan isn’t alone in being bullish about commodities. For example, Goldman Sachs also warned earlier this month that there is likely to be a supply shock in the copper value chain, and the investment bank is notable for its consistency in seeing a bull run for raw materials. These predictions paint a positive picture for what extraction companies such as Southern Copper Corporation (NYSE: SCCO) can expect in the foreseeable future.
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