TheStar
COMMODITIES are expected to remain one of the best investments this year amid the global economic slowdown as strong demand will persistently outstrip supply.
World-renowned commodity investment expert Jim Rogers maintained that the bull market in commodities was far from over, despite the current pullback in major commodity prices on recession fears.
He told StarBiz: “While I am a terrible market timer and the single worst investor you ever met, the commodities market can frequently correct 40% to 50% even during a bull market.”
Citing the crude oil bull market in 1999, he said the commodity prices had gone down 40% to 50% during that period.
“Currently, there are still attractive opportunities as most commodities, based on their historic price levels and adjusted-for-inflation, are relatively cheap and below their all-time highs.
“I will continue to look at agriculture commodities like sugar, coffee and cotton as well as base metals like zinc, silver, tin, lead and copper.
“Even if the world economy is going to collapse with everything coming down, I will opt to own wheat and cotton rather than Google or IBM shares!” Rogers said.
In April 2006, Rogers correctly predicted oil would reach US$100 a barrel and gold US$1,000 an ounce. Oil reached a record $142.99 a barrel on June 27.
“Investors should always buy low when things are correcting. It is too bad when most usually don’t take this advice.
“I personally prefer to buy when markets are declining rather than rising,” added.
Rogers’ inaugural visit to Malaysia was under the courtesy of Citibank Bhd, where he was the special speaker at the Citigold Wealth Management Leadership Series.
Rogers had co-founded the Quantum Fund, a global investment group with investment wizard George Soros. Rogers is also known for establishing his own commodity index – Rogers International Commodity Index (RICI) – a composite US dollar based total return index.
This index has risen a whopping 418.51% over the last decade.
On suitable investments for retail investors, Rogers said: “Most studies have shown that index investing is the best in every asset class in every industry.
“Index investing has outperformed active investment managers by 80% most of the time year after year.”
On investment in emerging markets, especially China, Rogers admitted that he had been buying some shares and renminbi and planned to buy more.
On the perception that commodity investment is highly risky compared with stocks, he said: “Many people lost in the dotcom bubble and stocks too over the years. Commodities, in fact, has turned less risky over the past two decades.
“Stocks can go to zero. In the case of natural gas-based Enron, its shares went to zero (after the financial debacle).
“On the other hand, natural gas can never go to zero. It can go down, obviously, but it can never go to zero.”
A study by Yale University indicated that investors could gain 300% more by investing in commodities than in commodity companies, with less volatility and a better inflation hedge.
In his latest book Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market, Rogers was quoted as saying, “History shows that the bull market in commodities will last a long time, meaning the current rally may continue through 2014 to 2022.”
Asked whether the bull run in agriculture-based commodities will be much shorter than metal-based commodities, Rogers said: “With agri commodities, the world is facing a new problem – the inventory of agri-based food products is currently the lowest seen in over 50 to 60 years.
“The world has never experienced such a situation. Even in the 1970 when we had a big bull market in agriculture products, the world still had a high food inventory. This time around, we don’t.”
Furthermore, in the advent of poor weather, the bull market in agriculture products and food could last much longer, he added.
He blamed the current low inventory levels in most agriculture-based commodities to the biofuel hype: “We are burning a lot of agriculture-based food products into our fuel tank. This is something which the world has never done before.”
Rogers said production of biofuel, especially from corn, was a horrible waste of time, money and energy.
“Global food prices have risen due to the biofuel drive,” he said.
But, does that mean biofuel production will stop?
“Unfortunately, no. Biofuel is here to stay at least in the foreseeable future. Politicans simply love it,” Rogers added.
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