For obvious reasons, many individual investors have been scared off from owning some of the world’s most popular commodities. In the past 12 months, oil is down 50%, copper is down 40%, silver is down 18% and gold is down 12%. For many, it seems as if there is nowhere to hide.
“The commodities space represents great value versus the rest of the market. There has been no place to hide -- gold, industrial metals, and energy have all been weak. The underperformance versus the broader market has been dramatic.” - Van Eck Global
In August, Barron’s released its controversial front story “Time to Buy Commodities,” stating that sentiment on energy and gold (and oil and metals stocks) may be nearing capitulation.
It seems as if a few legenedary investors think the same.
Stanley Druckenmiller (Trades, Portfolio) made a $323 million bet on gold, making it his largest position. George Soros (Trades, Portfolio) has infused cash into struggling coal producers Peabody Energy (BTU, Financial) and Arch Coal (ACI, Financial), while Carl Icahn (Trades, Portfolio) took an 8.5% stake in copper miner Freeport-McMoRan (FCX, Financial). One of David Einhorn (Trades, Portfolio)’s biggest bets right now is Consol Energy (CNX, Financial), while Steven Cohen (Trades, Portfolio)'s portfolio is nearly 25% invested in energy.
Should you follow suit?
Emerging Markets to the Rescue?
A gigantic driver of demand looks to be picking up for commodities. A recent chart from Morgan Stanley suggests that emerging markets might have found a trough, implying an impending rebound. The bank compares the recent bear market to five previous ones and finds that it's tracking a similar price action as 1995, 2002 and 2011. It's also much less severe than 1998 and 2008.
Additionally, Bloomberg estimates that by 2050, 3 billion people will enter the middle class, nearly all of them in the developing world. Chevron (CVX, Financial) also recently estimated that energy use would be up by roughly 40% by 2030. These are tough, long-term tailwinds for traders to derail.
Don’t believe that emerging markets can move the needle enough? Check out this chart from HSBC (HSBC, Financial). China accounts for 13% of the world’s demand for commodities, with India, Thailand, Indonesia, Mexico, Brazil, Malaysia, and Turkey also combining for major shares. Eleven of the top 25 consumers are from developing countries, and their demand is growing at factors above developed nations.
If emerging markets indeed have found a bottom, legendary investors such as George Soros (Trades, Portfolio), Carl Icahn, David Einhorn (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio) may see their commodity bets pay off big time.
