Commodities Decline Slightly in March Though Higher Prices Are Expected as Emerging Markets Continue to Drive Demand

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Apr 06, 2010, 12:13 ET

NEW YORK, April 6 /PRNewswire-FirstCall/ -- Increased demand in emerging market economies is expected to drive commodity prices higher over the short term due to the difficulty and time required to increase production. While benefiting commodity pricing, this may also result in depressed global equity valuations.

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Andrew Karsh, Co-Lead Portfolio Manager for the Credit Suisse Total Commodity Return Strategy said, "We expect the correlations between commodities and other asset classes to decline to more normalized levels as supply-and-demand dynamics once again begin to drive prices, as opposed to macro-economic factors. This is consistent with economic theory, as well as previous experience, and leads us to believe that exposure to commodities continues to be attractive both from a tactical and a strategic perspective."

Christopher Burton, Co-Lead Portfolio Manager, added, "While commodity demand continues to normalize in developed markets, significantly higher levels of inflation may likely develop over the long term. In general, as governments seek ways to finance spending and reduce debt while preserving growth, allowing for some level of inflation may prove easier than raising taxes or cutting expenditures. Because commodities are inherently linked to the key components of inflation, returns in the space have historically proven favorable in such situations."

Despite gains in February, commodities declined modestly in March, with the Dow Jones-UBS Commodity Index Total Return down 1.24% for the month. Index performance was mixed, with 11 of 19 commodities within the Index posting gains. Industrial Metals maintained its momentum from February to finish as the strongest sector in March (up 9.66%). Nickel remained firm: It was the strongest performer during the month, and is the strongest year-to-date, returning 18.05% and 34.56%, respectively. Agriculture, the worst sector year-to-date, declined 7.98% due to Sugar's performance. Sugar was unable to reverse its downward trend and was the weakest commodity in March, declining 29.69%. Although it gained 86.26% in 2009, Sugar has been experiencing mean reversion thus far in 2010, and is down 36.61% year to date.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of their latest whitepaper, "Capitalizing on Any Curve: Clarifying Misconceptions About Commodity Indexing", please email [email protected].

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for fourteen years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using a quantitative commodity research process. Commodity index total returns are achieved through:

Spot Return: price return on specified commodity futures contracts;
Roll Yield: impact due to migration of futures positions from near to far contracts; and
Collateral Yield: return earned on collateral for the futures.

About the Portfolio Managers

Christopher Burton, CFA, and Andrew Karsh are Co-Lead Portfolio Managers of the Credit Suisse Total Commodity Return Strategy. As of March 31, 2010 the team managed approximately USD 5.0 billion in assets globally.

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SOURCE Credit Suisse AG