Commodity Markets Increase Due to Demand for Hard Assets and Generally Tight Supply Conditions

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Aug 10, 2011, 09:56 ET

NEW YORK, Aug. 10, 2011 /PRNewswire/ -- Commodities posted broad-based gains in July despite prolonged uncertainty surrounding the European debt crisis and the lack of resolution over the US debt limit expansion.

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Nelson Louie, Global Head of Commodities at Credit Suisse Asset Management, said, "Commodities posted broad-based gains in July, outperforming equities, due to a combination of demand for hard assets and generally tight supply conditions. However, prolonged uncertainty surrounding the European debt crisis and US monetary and fiscal policy has contributed to increased volatility in commodities markets and widespread risk aversion. Given the disappointing economic readings in July adding to suspicions that economic growth may be slowing in the OECD, we believe interest rates in the US will continue to remain exceptionally low for an extended period of time and overall monetary policy will likely remain accommodative."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "In the long term, we believe commodities will continue to offer value for investors despite risk aversion and potential volatility across capital and commodity markets. Political disagreements and elevated government debt levels in Europe and the US pose risks to derailing the global economic recovery. The uncertainty surrounding this can impact traditional asset classes and commodities differently. Therefore, we believe investors will continue to benefit from the diversification benefits that commodities provide."

The Dow Jones-UBS Commodity Index Total Return was up by 2.96% in July. Overall, 15 out of 19 index constituents increased in value. Precious Metals was the strongest sector, up 10.13% for July. With no resolution reached over the US debt ceiling by the end of the month, investors continued to seek out Gold as a reserve currency alternative. Industrial Metals faired well in July, aided by growing wage negotiation issues and labor strikes at mines in Chile and South Africa which threatened supply for some metals. Demand indications out of China were also strong. Livestock ended the month up by 3.15%, led by Lean Hogs as hot weather in the US slowed hog marketing at a time when pork plants are working to supply an active export market. Agriculture also posted positive returns, up 2.79% for July, supported by strong demand following a sharp reduction in prices and potential weather damage in the US. Energy was the only sector to post a loss for the month, losing 0.83% in July. Crude Oil was relatively unchanged, despite Gasoline and Heating Oil posting gains of 4.39% and 4.66% respectively. Strong US onshore production and increasing Canadian imports amid a constrained infrastructure system depressed West Texas Intermediate (WTI) Crude Oil despite tight supply in global markets. This contributed to increasingly strong margins for refined products in the US as well.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team's white paper, "Commodities Outlook: Increased Volatility, Increase Opportunity?", please email [email protected].

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for 17 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 both a quantitative and qualitative 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.

As of July 31, 2011 the team managed approximately USD 10.9 billion in assets globally.

An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy. Investment in commodity markets may not be suitable for all investors. Commodity markets are highly volatile and the risk of loss in commodities and commodity-linked investments can be substantial.

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Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.

SOURCE Credit Suisse AG