QE2 could be game-changer for commodities - UBS !!!!

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QE2 could be game-changer for commodities - UBS

The Swiss bank identified palladium, iron ore, thermal coal, gold, copper and zinc as its top commodity picks as a result

Posted:  Tuesday , 19 Oct 2010

http://www.mineweb.co.za/mineweb/view/m ... ail&pid=31

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Commodity Prices On The Move Again

Published in Investing on 14 October 2010

http://www.fool.co.uk/news/investing/20 ... again.aspx

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Mobius Says World Bull Market Faces No Risks `Any Time Soon'

The U.S. Federal Reserves bond purchase plan will further drive the rally for global stocks and push commodity prices higher and higher, said Templeton Asset Management Ltd.s Mark Mobius.

We could have an optimistic scenario for quite some time, Mobius, who oversees about $34 billion, said in a telephone interview from Beijing yesterday. Commodities are the big area for us. We are great believers in higher commodity prices and therefore are investing in commodity companies.

The MSCI World Index yesterday surged to a two-year high, gold jumped to a record and crude oil advanced to a seven-month high after the Fed announced Nov. 3 plans for $600 billion in bond purchases through next June. Asian stocks rose today, pushing a benchmark gauge to its best weekly advance this year, on speculation the Fed will succeed in stoking growth in the worlds biggest economy.

The liquidity flooding the global economy from the Feds quantitative easing will extend record gains for commodities and dollar depreciation cannot be avoided, said Mobius, 74, who is also the chairman of Templetons emerging markets group.

The U.S. economy is growing and that will have a positive effect on Europe and spread to other countries, Mobius said. The bright spot is the emerging markets where demand continues to grow, he said. Rising incomes in developing nations are especially good for consumer stocks, he said.

Mobius joins Goldman Sachs Asset Managements Jim ONeill in saying the Feds measures to boost the U.S. economy will spur further gains for global equities. ONeill, creator of the BRICs acronym to describe the large emerging markets of Brazil, Russia, India and China, said this week that while a new bull market in global equities probably started in the past 15 months, current valuations are far from a bubble.

China Bull

The MSCI Emerging Markets Index has jumped 17 percent this year, compared with an 8.4 percent advance for a measure of developed markets.

Mobius said hes very bullish on China as the country has no big problems. Even though stock valuations are not as attractive as last year they are not out of sight and Templeton funds are buying companies that are expanding in the nations less developed regions, particularly consumer companies.

Its not as easy as it was but were still buying and finding opportunities, he said.

The Shanghai Composite Index has rebounded 32 percent since reaching this years low on July 5 on expectations central banks around the world will inject more cash into their economies to boost growth. It remains down 4.5 percent this year after the government raised bank reserve requirements and curbed lending growth to cool the economy.

Wouldnt Touch

Demand is so strong in China that Mobius is now looking at airline stocks, an industry that he said he normally wouldnt touch because of low profit margins.

Emerging markets may faces inflationary pressure from the capital inflows spurred by the Feds measures, he said.

Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bond funds, both poised for their best year since Cambridge, Massachusetts-based EPFR Global started tracking them in 1995.

Central banks in emerging markets will buy dollars to prevent their currencies from rising too fast and as their foreign exchange reserves increase in size so they will appear increasingly safe to investors looking for markets with higher economic growth and yields, Mobius said.

Its a vicious cycle, he said. The consequences could be not too good going forward. Its something we have to watch carefully.

China Concern

The Fed needs to explain this weeks decision to purchase bonds to pump money into the worlds biggest economy or risk undermining the global recovery, Cui Tiankai, Chinas Vice Foreign Minister, said at a press briefing in Beijing today.

Cuis remarks echo concerns raised across Asia as countries brace themselves for stronger currencies and possible asset- price inflation. German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next weeks Group of 20 leaders summit in Seoul.

For now, capital inflows in emerging markets are being counterbalanced by hundreds of billions of funds being raised by new stock sales and secondary fund raisings, Mobius said.

If funds keep pouring in and companies that have raised cash begin using it to buy assets, prices will be pushed up in a snowball effect, he said.

The worst-case outcome is a bubble that bursts after prices rise too fast, with people getting hurt because they were too optimistic, Mobius said.

If the U.S. governments quantitative easing plan fails and fiscal tightening follows, Western economies may be back into recession, Albert Edwards, Societe General SAs London-based strategist, wrote in a report yesterday. That will trigger a 60 percent drop in equity prices, he said.

Mobius said none of these outcomes is likely in the short term and his funds are fully invested. Im pretty optimistic, he said. I dont see any risks any time soon. These things can last for years and years.

http://www.bloomberg.com/news/2010-11-0 ... gher-.html