Slower world growth gives commodity investors cold feet – by Claire Milhench and Barani Krishnan (Reuters U.S. – April 29, 2013)

http://www.reuters.com/

LONDON/NEW YORK – (Reuters) – Investors are staying away from commodities, fearing that the worst is yet to come after prices plunged in April on signs of slower world economic growth.

Wealth managers have been pulling money from commodities since the start of the year, culminating in a major sell off in April when investors dumped gold, copper and oil.

Poor economic data from China, Europe and the United States has hit global growth forecasts, making investors reassess the demand for raw materials.

The 19-commodity Thomson Reuters-Jefferies CRB index was down almost 6 percent following April’s rout and is still off some 4 percent since the start of the year. Investors say it is too soon to pick up a bargain.

“We are neutral to mildly underweight commodities now and we are not exactly itching to get straight back in there,” said Johan Jooste, chief market strategist at Merrill Lynch Wealth Management, EMEA, which manages some $1.76 trillion globally. “The macro story is just less supportive of commodities now.”

Some $9.02 billion was pulled from commodity sector mutual funds in the month to April 26, according to data from research firm EPFR Global. This followed $8.5 billion of redemptions from commodity exchange traded products (ETPs) globally in the first quarter, according to BlackRock data.

“We are not out of the woods yet,” said Andrey Kryuchenkov, an analyst at VTB Capital. “We will still need persistent physical interest in order to underpin prices and limit the downside at times when investors remain utterly unconvinced.”

Commodities are particularly sensitive to economic news about China, a manufacturing powerhouse that also requires huge amounts of raw materials to build its infrastructure.

China’s economic recovery unexpectedly stumbled in the first quarter of 2013, with growth sliding below the 8 percent forecast as factory output and investment spending slowed.

“The biggest concern right now in commodities is that the economic slowdown in China is going to be far more severe than anticipated,” said Jeff Sica, chief investment officer at New Jersey-based Sica Wealth Management, which oversees more than $1 billion in assets.

“This slowdown is going to shake a lot of people up.”

Sica is currently underweight commodities and short copper, which is particularly sensitive to Chinese demand. China is the world’s biggest consumer of copper, accounting for 40 percent of demand. Managers say that without strong growth from China, commodities will not perform well and China’s key export markets are struggling.

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