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Writer's pictureRoyce Advisory

Time to Rethink Your Portfolio's Commodities Exposure?

Many investors are currently grappling with how best to position themselves when it comes to commodities like iron ore, copper, and aluminum.


Recent fluctuations in China’s growth, global policy changes, and shifts in demand for construction-related commodities have sparked fresh debates on where to invest.


Here’s why:


-> Short-term Stabilization: China's recent policy measures, including rate cuts and downpayment adjustments on second homes, have offered temporary relief to markets. However, more needs to be done to ensure long-term recovery in sectors such as property and infrastructure.


-> Iron Ore at Cost Support: While iron ore markets are currently in surplus, prices around US$90-$100/t appear to have found support at the cost curve. For investors with exposure to diversified mining companies, understanding how this impacts earnings and margins is crucial.


-> Long-term Opportunities in Copper: Although weaker near-term, copper supply dynamics are expected to tighten over the next one to two years, presenting a compelling medium-term opportunity. Companies with higher exposure to copper, such as BHP, may offer upside potential as prices stabilize around $9,000/t.


-> The Balance Between Risk and Reward: While the commodities landscape can be unpredictable, portfolios that strike the right balance between risk and reward, leveraging opportunities in diversified assets, are better positioned to weather uncertainty.




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