The red-hot commodity market is being underappreciated in the long term by investors still obsessed with stocks, JPMorgan says
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Matthew Fox
May 16, 2021, 19:31 IST
A trader reacts as he works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020.Lucas Jackson/Reuters
Commodity prices have soared in recent months, but investors obsessed with the stock market don't seem to care, according to a Wednesday note from JPMorgan.
Global investors only have 0.6% of their portfolios allocated to commodities excluding gold, below the average weighting.
If inflation continues to surprise to the upside, commodities will serve as a useful hedge for investors, JPMorgan said.
Commodity prices have been surging in recent months as pent-up demand from consumers amid a reopened economy, combined with supply chain imbalances, created a perfect storm.
With inflation on the rise, investors should look to increase their commodity exposure as a hedge, according to a Wednesday note from JPMorgan.
This dynamic, in combination with easy year-over-year comparables, led the consumer prices index to surge 4.2% in April, representing its strongest reading in 13-years.
Despite the surge in inflation and the recent rise in commodities, JPMorgan found that investor allocation to the commodity ex-gold space stands at just 0.6%. That's below its post-2009 average, and well-below the near-1% levels it stood at from 2010 to 2013.
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At the same time, investors can't seem to get enough of stocks, with equities allocations surging past its post-2008 average in recent months, according to JPMorgan.
"Investors are currently underweight commodities in global portfolios," the bank said. This sets up equities to be more vulnerable than commodities from a positioning perspective.
"Not only do commodities ex-gold look less vulnerable in the longer-term from a positioning point of view relative to the near-term, but they also look a lot less vulnerable relative to the equity asset class," JPMorgan explained.
And if inflation continues to surprise to the upside in the coming months, commodities relative attractiveness in the long-term "becomes even stronger given investors' perception of commodities as [a] better inflation hedge," the JPMorgan concluded.
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