The third quarter of 2011 greeted global investors with fears that the US federal government was contemplating a default on its national debt, along with lingering concerns from the Euro debt crisis. Despite a last-minute reprieve for the US, sentiment remains wary.
Although in general commodities are negatively correlated to the equities and bond markets, investors earlier this month made an exodus out of commodities; driving prices down to their lowest in months on the back of fears of a possible recession due to the continuing financial woes.
Some analysts say that Standard & Poor’s downgrade of the US sovereign credit rating to ‘AA+’ from ‘AAA-‘ could not have come at a worse time for the commodity markets, as they predict that economically sensitive commodities such as oil and copper could move lower as a result. However, other indicators including the strong US job market did provide some relief for the global economy, which in turn, helped some commodity markets, although failed to prevent the downward spiral of several key markets.
The commodities market is no stranger to volatility and ups and downs are frequent. However, many analysts are still optimistic about the long-term outlook for commodities, particularly hard commodities.
One of the major reasons for the optimism is China’s continued demand for resources as a result of its sustained albeit slower growth. China is currently a major (if not the largest) importer of numerous commodities including copper, iron ore, crude oil and coal.
The one commodity investors have once again resorted to in times of need is that age-old favorite; gold. On the 8th August, the precious metal surged to an all-time high of US$1,715 an ounce, marking its 11th record in 19 sessions. Gold has reportedly gained more than 20% so far this year. Most of the Islamic funds with a commodities theme have some exposure to this precious resource.
July proved to be a good month for Islamic commodity funds according to Eurekahedge’s latest data, based on July’s figures. It revealed that the top six of the 10 Islamic funds featured in its monthly return are commodity-based, specifically hard commodities. Eurekahedge lists a total of 20 Islamic mutual funds and exchange traded funds available globally that either have exposure to commodity stocks or the physical commodity itself.
Adding to the list this week is Indonesian life insurance company AXA Mandiri Financial Services, which launched Advanced Commodity Syaria Rupiah, its commodity-based equity fund (see fund news). The fund will be investing in commodity stocks traded on the Jakarta Mining Index and the Jakarta Agriculture Index.
It will be interesting to see how Islamic commodity funds perform during such volatile times.