TheStar
Strengthening US dollar will continue putting pressure
PETALING JAYA: Commodities-linked funds in Malaysia have been the worst performers for the past one year and the outlook is not encouraging, according to data provider Morningstar Asia Ltd.
Economists said commodity prices would continue to come under pressure, going forward, given the current bullishness of the US dollar.
“The strengthening of the US dollar, to some extent, explains the weakness of commodity prices,” said Nor Zahidi Alias, chief economist of Malaysian Rating Corp Bhd.
“The current surge in the greenback against major currencies – except the yen – means many traders will continue unwinding their positions in the less attractive dollar-denominated commodities.”
Morningstar Asia’s data showed that, on average, commodities-linked funds slumped 37.32% while equity funds fell 36.36% in the past 12 months from October, underperforming other funds.
The CRB/ Reuters US Spot All Commodity index fell by 28% from its high in July this year.
Another closely watched barometer – the CRB/ Reuters US Spot Raw Industrials index – declined by 30% from its high in May.
Only money market funds delivered positive returns, climbing 2.19% over the same period.
However, it must be noted that the fund size for commodities was RM206.5mil as at end-September compared with equity funds, which had RM22.6bil, and money market funds RM13.1bil.
Morningstar Asia said the commodities market might remain subdued over the short term due to the slower global growth, de-leveraging by financial institutions and sharply-tighter global credit conditions.
Singapore-based Asian Forecasting Group economics director David Cohen said in view of the current downbeat outlook, investors were expected to make further redemptions from commodities-linked investments in the near term.
Does this mean that unit trust funds with primary exposure to commodities, especially those launched recently, are in a quandary?
One asset management company told StarBiz the commodities market were still volatile and was, therefore, unable to comment.
Another fund manager said sales had slowed and redemptions increased, but not at an alarming rate.
Some funds had lost their net asset value by more than 30% over the past six months due to the softening demand for commodities, the fund manager said.
Nor Zahidi said a downbeat outlook on global economic growth by the International Monetary Fund (IMF) also led to a drastic decline in overall commodity prices.
The IMF has forecast that the global economy will grow by only 3% in 2009, suggesting that the world is near a recession.
Nor Zahidi said China’s economy, for instance, had moderated to 9% in the third quarter this year, down from 10.1% in the preceding quarter.
“Prices of crude palm oil (CPO) have also responded to the expectation of a softer demand, particularly from China, and lower crude oil prices,” he said.
“Prices have recently fallen below its 12-year average of RM1,622 per tonne and will likely remain below RM 2,259 per tonne in the near term.”
The January 2009 benchmark contract for CPO closed unchanged yesterday at RM1,586 per tonne.
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