A gloomy economic outlook is leading analysts to favour defensive commodities over cyclicals this year. Hussein Allidina, the head of commodities at Morgan Stanley in New York, said gold, agriculture and livestock were his top picks, and here he explains why.
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What do investors need to keep in mind when building portfolios this year?
Given a slower GDP outlook this year, investors need to be more selective about exposure. We believe commodities with constrained supply will outperform.
Gold has slumped more than 10 per cent this month, trading at around US$1,600 an ounce. Do you still see upside in the precious metal?
Many in the market questioned whether the movement signalled the end of the 10-year bull market for gold - we believe it does not. The defensive nature of gold should continue to support investment demand as investors look for safe havens. [Mr Allidina forecasts gold to touch $2,200 this year.]
Corn had a strong run last year. Do you expect the trend to replicate this year?
Tight US and global fundamentals leave us constructive on corn at least through the first quarter as larger livestock herds suggest higher feed demand. The development of dry weather in Argentina and Southern Brazil also bodes poorly for yields.
What is your view on soybeans? Prices rose 5.9 per cent last month.
Soybean has been supported by concerns over dry and warm weather in South America and competition from corn. Dry weather in Argentina is expected to delay double-crop soybean planting, while a lack of soil moisture could also reduce final bean yields. Similarly in Brazil, December rainfall [declined] 36 per cent and 74 per cent year-on year in the states of Mato Grosso do Sul and Paraná. The two states together produce about one fourth of Brazil's soybean crop.
Energy was the second-best performer after gold last year, with Brent up 17.5 per cent and currently trading just above $102 a barrel. Where do you see the oil price going this year?
Tight fundamentals are likely to erode this year, given recovering supply and slowing demand. We expect oil to fall in the first half to as low as $85 to $90 a barrel.
halsayegh@thenational.ae
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The Melbourne Mercer Global Pension Index
The Melbourne Mercer Global Pension Index
Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
Mr Abukhater said the challenges of an ageing population, increased life expectancy and some individuals relying solely on their government for financial support in their retirement years will put the system under strain.
“To relieve that pressure, governments need to consider whether it is time to switch to a defined contribution scheme so that individuals can supplement their own future with the help of government support,” he said.
WISH
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