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Economic Update

Commodities recovery on the way

The latest research from brokerage house Invast Australia has forecast the possibility of a recovery in commodity prices in the first half of 2016.

According to the “November 2015 Investment Committee Monthly Outlook”, commodity prices were close to bottoming out, affording investors the ability to benefit from a rebound in well-diversified sector stocks such as BHP Billiton.

“Energy and the bulk commodities, in addition to base metals, have experienced horror numbers,” the report said.

“A huge amount of shareholder wealth has been destroyed. The Australian dollar and terms of trade decline have reflected this perfectly.

“Yet we’re starting to open up to the idea that maybe the large and well-diversified names, like BHP for example, are about to turn around their fortunes in the new year.

“Glencore’s panic selling may have been a sign of the bottom. The rally was purely ridiculous, we would be completely staying away from that type of volatility.

“But BHP in the mid-$20 range is a different matter.”

Invast Australia noted it would be monitoring price movements very closely in the immediate future, with the likelihood of BHP experiencing better-than-expected earnings in February.

The brokerage firm added while commodities and energy equities had in the main been sold off recently, they were worthy of a regular review as part of a well-diversified thematic portfolio.

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