(Hanoi Iron and Steel – HSV) The bank forecasts that raw materials will be the best performing asset and will increase sharply next year due to supply shortages.
According to analysis by Goldman Sachs Bank, commodities will once again become the best performing asset in 2023 and bring returns to investors of up to 40%. While the first quarter of 2023 could be bumpy as the economy remains weak, scarcity of raw fuels from oil to natural gas and metals will boost prices afterward, the Wall Street bank said.
Goldman predicted a multi-year commodity super cycle by the end of 2020. It maintained that view even as energy prices fell in recent months as China's Covid-19 restrictions and the global economic slowdown held back demand.
"While prices for many commodities nearly doubled year-on-year in 2021 in May, capex across the entire commodity mix disappointed. Even unusually high prices earlier this year failed to generate sufficient capital inflows," said analysts Jeff Currie and Samantha Dart.
The bank expects the S&P GSCI Total Return Index, a leading gauge of commodity price volatility, to rise 43% in 2023. Goldman is not alone among analysts and investors in being bullish on commodities. Many believe that the lack of exploration for new oil fields and investment in the fields has led to depleted reserves and tight markets.
Main developments of S&P GSCI numbers in the past year. Source: S&P
The top 15 commodity-focused hedge funds have increased their assets by 50% this year to $20.7 billion, according to preliminary data from Bridge Alternative Investments.
“Without sufficient investment to create spare supply capacity, commodities will remain stuck in shortages for an extended period, with prices higher and more volatile,” Goldman analysts said.
The bank forecasts that Brent crude will rise to $105/barrel in the fourth quarter of 2023, up from the current $82/barrel. Copper will also increase to $10,050/ton from $8,400/ton this year while the Asian benchmark LNG price increases from $33/mBtu to $53.10/mBTU.
However, some analysts have also expressed skepticism, saying economies are too fragile for commodities to rise much more.
“The tide may be turning,” said Citigroup analysts led by Ed Morse. “The possibility of a global recession poses a threat to an asset class that has undergone a renaissance over the past two years.”