Since the beginning of this year, the gold price that has been constantly refreshing the high price has made many investors sigh that the real gold track may be being paved in full swing. It is reported that the price of gold has climbed from $2,073.4 per ounce at the beginning of the year to $2,375 per ounce today. (Data source: Wind Information, statistical interval: 2024.1.2-2024.5.10)
If we look further, in addition to gold, precious metals such as silver and copper, and resource stocks such as crude oil have also performed well, and prices have ushered in a strong climb. The positive performance of each segment may open up momentum for the recovery of the commodity market.
The overall general rise, commodities lead the market
The wind of recovery is gentle and firm, and it has generously blown to all kinds of risk assets, among which the commodity market has benefited a lot, ending a two-year period of shock adjustment and showing a leading posture.
SSE Commodity Stock Index and Wind All A Stock Index
Trend comparison since 2022
Data source: Wind Information, statistical period: 2022.1.1-2024.5.10
Commodities may be brewing a positive market, but for now investors are more concerned about:
After experiencing a relatively large rise, is the layout space of commodities still broad?
How to invest to grasp the growth dividend of the sector more efficiently?
Multiple positive factors are intertwined to support the upward trend of commodity markets
With both commodity and financial attributes, the investment environment for commodities may be more complex. On the one hand, this round of rise benefited from the above-expected performance of the domestic macroeconomy, and on the other hand, overseas geopolitical factors also supported the rise in commodity prices.
The economic performance exceeded expectations, and the demand side was boosted
The commodity market is bright, and its core kinetic energy has exceeded expectations since macroeconomic fundamentals. Since mid-February this year, the domestic economy has rebounded and enterprises have started to drive the overall rise of the commodity market; At the same time, with the continuous efforts of various economic stabilization policies, market confidence has recovered, and the demand of downstream production and processing enterprises has risen, which also indicates that the macro economy after the first quarter is expected to come out of a steady recovery momentum. (Source: 21st Century Economic News, "Domestic Commodities "Ice and Fire": Steel and Coal Actively Control Production Capacity, Nonferrous Metals Supply and Demand Tight Balance Source", 2024.4.8)
The trend of China's manufacturing PMI index
Image source: Wind Information, as of 2024.5.13
As shown in the chart above, the PMI index has been firmly above the boom and bust line recently, which is enough to prove that the economic recovery has exceeded expectations, and also shows that there is solid support for the upward movement of commodities.
Geopolitical conflicts, driving up commodity prices
Historically, it can be observed that commodity prices tend to rise in times of geopolitical turmoil, perhaps because conflicts can lead to real supply disruptions and spur inflation. In particular, the conflict is taking place in important commodity-producing towns or on essential transport routes.
The resonance of demand between China and the United States has pushed commodity prices upward
China determines commodity fundamentals, and the United States focuses on its financial attributes. On the one hand, at the time of the switch between the old and new drivers of China's economy, the focus of development has shifted from the previous investment-driven to consumption-driven, in this process, the industrial metal production capacity gap may continue to widen, and the pressure on the supply side has prompted commodity prices to continue to rise; On the other hand, under the strong economic stimulus policies introduced by the United States one after another, the financial attributes of commodities are also increasing. The combination of the two boxes will jointly promote the continuous upward movement of commodity prices.
From a cyclical perspective, the future investment space for commodities may still be broad
Is it a phased repair, or is it the start of a new round of market?
As a typical cyclical asset, investors may wish to decode the future of commodity investment from the perspective of cycle rotation.
Liu Zhaoliang
Researcher of non-ferrous industry of Guolianan Fund
Liu Zhaoliang, a researcher in the non-ferrous metals industry of Guolianan Fund, from the three dimensions of industrial cycle, investment cycle and global recovery cycle, believes that commodity prices may continue to remain high, and there is broad space for investment in the future:
Industry cycle
The capital expenditure of upstream resources has been insufficient for a long time, and the production capacity has entered a downward cycle, and the long-term characteristics of resource investment determine that once the gap between supply and demand is confirmed, the price is easy to rise and difficult to fall, and it will last for a long time at a high level, thus bringing about a continuous increase in the valuation center of related cyclical stocks.
Investment cycle
The era of high domestic investment is over, and the era of excess capital has begun. After industrialization entered a mature and stable period, the supply and demand pattern began to stabilize, cash flow increased significantly, debt ratio decreased, and shareholder returns increased. The downward interest rate cycle, combined with the increase in investment returns, will slowly move the valuation pivot upward. The persistence of high commodity prices and the sustainability of earnings are the root causes of long-term shareholder returns, which ultimately lead to both earnings and valuations.
Global cycles
In addition, the rapid development of AI and new energy technologies is expected to increase the demand for some industrial metals, and the expectation of interest rate cuts is postponed again, which may support the bulk sector.
Even after a good performance in the early stage, the current valuation of the Shanghai Commodity Index is still in the low range of 1/3 in the past decade, providing considerable allocation cost performance.
Shanghai Commodity Index P/E Ratio Chart
Image source: Wind Information, as of 2024.5.10
Guolian An SSE Commodity ETF is an anti-inflation investment weapon
For individual investors, how can they participate in commodity investment more securely?
Liu Zhaoliang believes:
● From the perspective of investment targets, as the name suggests, bulk commodities refer to material commodities that usually do not enter the retail sector and need to be bought and sold in large quantities.
● The bulk commodity industry chain is long and extensive, and the performance of various enterprises is differentiated, showing different business appearances. Compared with actively managed funds, ETF funds that track and replicate index growth may be better able to help investors share the dividends of industry growth.
● Although commodities are expected to improve, short-term disturbance factors still exist, and there are also differentiations within the industry, such as the good performance of non-ferrous metals and crude oil, and the market of agricultural products is worrying; The categories that rose sharply in the early stage have a higher probability of accepting adjustments in the later stage. Based on this, it is advisable to focus on more comprehensive ETF products, which can better mitigate risks on the one hand, and broaden the sources of income on the other hand.
Starting from the above three points, the Shanghai Commodity Stock Index (000066. SH) (hereinafter referred to as the Shanghai Commodity Index) deserves the attention of investors. According to CITIC's first-level industry classification, the SSE Commodity Stock Index has a reasonable distribution of industries: non-ferrous metals, coal, petroleum and petrochemicals, chemicals, iron and steel and other industries with significant bulk attributes occupy a relatively large weight, covering the bulk commodity field well.
Sector Distribution of SSE Commodity Index (by CITIC Level 1 Industry)
Image source: Wind Information, as of 2024.5.10
Guolianan SSE Commodity ETF (510170) and its feeder fund Guolianan SSE Commodity ETF Feeder (Class A: 257060, Class C: 015577), as the only ETF fund products in the market that tracks the SSE Commodity Index, have performed considerably in the medium and long term, creating a high-quality tool for investors to tap into the commodity field for a long time.
According to the statistics of the Fund Research Center of Galaxy Securities, Guolianan SSE Commodity ETF Connect A has performed well in the past 1 year, 3 years and 5 years, ranking high among similar funds.
Data source: Wind Information, Galaxy Securities Fund Research Center, similar funds as theme index stock ETF feeder fund (Class A), as of 2024.3.31
Performance Review:
Guolianan SSE Commodity ETF Connect A was established on December 1, 2010, and the annual results from 2017 to 2023 are: 17.92%, -29.86%, 23.81%, 38.05%, 38.65%, -7.30%, and -0.48%; The benchmarks for the same period are: 18.70%, -30.09%, 18.51%, 23.60%, 34.07%, -9.86% and -3.78%. Performance benchmark: 95% x SSE Commodity Index yield + 5% x bank demand deposit interest rate (after tax)
Data source: fund regular report, Wind information, as of 2024.12.31, the data has been reviewed by the custodian bank.
The warm spring market of bulk commodities not only brews rich investment opportunities, but also gives investors a deeper inspiration: for the asset industry with strong cyclical nature, we might as well jump out of the interference of short-term information noise, broaden our horizons and overlook the changes in the cycle, summarize the operation rules, locate the investment opportunity, and provide clear guidance for efficient layout.
At present, the economic recovery is strongly building a solid internal driving force, the frequent occurrence of external positive factors has formed a strong improvement, and the cycle rotation resonance supports the long-term improvement - the prelude to the long bull market of commodities may have been slowly opened. In this way, you might as well join hands with Guolian An SSE Commodity ETF Fund to go far on this golden track and strive for the top!
Product risk level: The risk of Guolianan SSE Commodity ETF and Guolianan SSE Commodity ETF Feeder Fund is R3 (medium), this risk level is only the evaluation result of the fund manager, and the evaluation results of the fund distribution agency are not necessarily consistent with the fund manager.
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