Progress toward vaccines and easing US political uncertainty
helped lift an MSCI index of world stocks to its best month ever in November
while driving down the dollar.
Equity bulls who
expect a global economic recovery to prolong the record-breaking rally in
stocks can take some comfort from signals in commodity
markets. Copper, iron ore and aluminum futures are around multi-year highs
and the Bloomberg Commodity Spot Index is close to its strongest since 2014
after rising from pandemic lows. For optimists that signals an Asia-led
worldwide rebound — soon be aided by the rollout of vaccines against the
pandemic — can help global stocks extend an 11 per cent advance so far in 2020.
“The commodities
rally is the reflation trade, which has kicked in very strongly” amid progress
toward a Covid-19 vaccine, said Rupal Agarwal, quantitative strategist at
Sanford C Bernstein in Mumbai. “Global equities should continue to do well as
uncertainty is finally dissipating.”
Progress toward
vaccines and easing US political uncertainty helped lift an MSCI index of world
stocks to its best month ever in November while driving down the dollar.
Investors have
begun piling into sectors of the stock
market viewed as more sensitive to economic recovery, such as cyclical
value shares and small caps.
The impending
deployment of Covid-19 vaccines together with the impact of stimulus “are
driving the expectations of a ‘V’- shaped recovery,” David Lennox, a resource
analyst at Fat Prophets in Sydney, said by email.
The ratio of
copper to gold — often viewed as a window on expectations for the global
economy — surged this week to the highest since mid-2019. The climb in the
S&P 500 index of materials companies has overtaken the technology-heavy
Nasdaq 100 index’s rally since the March lows.
“In a typical
recovery, commodities should be performing well,” said Kerry Goh, chief
investment officer at Kamet Capital Partners Pte in Singapore. “The best link
to this trade is industrial stocks.”
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