Schroders consider commodities exposure in inflationary environment
With geopolitical tensions continuing to drive global markets in 2023, commodities could be interesting asset classes as a source of diversification, according to Schroders market watchers.
Looking at the asset implications of tensions between US and China and the war in Ukraine, the tides had changed with regards to commodities, said Johanna Kyrklund, group chief investment officer at Schroders.
“In the last decade, you never owned commodities. In fact, we were negative on them for so long that we were beginning to wonder why we even had a team dedicated to looking at commodities within multi-asset,” she stated.
“And that was because we were in a deflationary environment. In [such] an environment, with overcapacity, commodities are not attractive. They're not diversifying to the exposures that you have but in a more inflation regime, with geopolitical risks and deglobalization, commodities can be quite interesting.”
She noted the ‘stockpiling’ that came with de-globalisation amid heightened tensions, was supportive of commodities as an asset class.
“Equally when you move into a hot war, as unfortunately we've seen in the case of Ukraine, the main transmission mechanism is via commodities. So I think that, coupled with the inflationary regime we find ourselves in, it does argue for commodities being an interesting asset class, a source of diversification,” Kyrklund elaborated.
Meanwhile, Keith Wade, chief economist and strategist at Schroders, said the credibility and relationship between central banks and governments would get more difficult as they attempted a balancing act to bring inflation under control while fighting a cost of living crisis.
“This could create quite an interesting, if not difficult, dynamic between the government and the central bank [regarding interest rates].
“This could lead to all kinds of things, particularly whether we’ll see more populist governments coming in or more pressure to change the remit of independence of central banks,” he said.
AUTHOR
Rhea Nath
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