China devalued currency impact on commodities market

China devalued currency impact on commodities market : Even before China devalued its currency in mid-August, prices of hard commodities, such as oil and metals, had fallen from year-to-date highs. China's move caused many investors and market analysts to fret that slowing demand from the world's second-largest economy may push prices even lower. That news may cause investors to wonder whether they should sell commodity-related investments, or whether low prices may signal a buying opportunity.

Some asset managers say investors should look at the bigger picture of all their portfolio holdings. That comprehensive view includes investment objectives and risk tolerance.

 One problem with volatile asset classes is that investors may be tempted to sell out during a rough patch. Despite best intentions of timing the market perfectly, investors who sell often miss out when the investment turns higher again. Often, as Hebner notes, exposure to a particular asset class is not even necessary, because a portfolio can be constructed with other types of investments that generate the required return while mitigating risk.

Adam Freedman, chief investment officer at CircleBlack in Princeton, New Jersey, says investors who appreciate the diversification advantages of commodities must also understand the potential downside of volatility.

"Commodities don't move in lockstep with stocks and bonds, so adding commodities to a portfolio tends to increase the portfolio's diversification. But commodities are also a very volatile asset class. Whether the additional diversification outweighs the high volatility depends on what else is in the portfolio and also what return commodities will provide," Freedman says.

Investors often turn to commodities as an inflation hedge. That's because hard assets often rise along with inflation. Even so, the old rule about past performance not guaranteeing future returns still applies.

"Unfortunately, there's no surefire way to predict how well commodities will do as an investment. While the return on commodities should, in theory, track the inflation rate over the long term, the funds that individual investors buy typically get exposure to commodities through futures markets. The returns from investing in commodities futures can be much higher or much lower than the inflation rate, even over long periods of time," Freedman says.

Commodities Futures Prices august 17 2015

Oil futures remained in negative territory on Monday, with Brent's October contract beginning weekly proceedings below $50, . At 1348 BST, Brent was down 0.16% or eight cents at $49.11 a barrel. Concurrently, the WTI slipped 1.46% or 62 cents to $41.88 a barrel as market sentiment remained bearish with traders squaring last week's Chinese yuan devaluation against lacklustre demand and ample supplies.

 Analysts at Barclays said the yuan devaluation was unlikely to materially impact Chinese commodities imports. "Furthermore, it is unlikely to have a direct impact on crude oil imports given the large scale with which crude has fallen and dwarves the depreciation of the yuan. If anything, this could possibly support China's crude imports as the country is now increasingly becoming a refined product exporter," they wrote in a note to clients.

Nonetheless, City commentators acknowledge the country's gasoline demand growth is unlikely to accelerate above the 11% currently recorded.

"Chinese oil demand this year is weaker than headline numbers suggest, in our view, and product stocking and refined product exports are masking the strength in refinery runs. Gasoline and LPG were the strongest parts of the barrel in the first half of the year, and while some of this strength will be maintained, diesel and fuel oil are likely to be weighed down by macroeconomic pressure," Barclays analysts concluded.

Base metal futures continued in negative territory, with the London Metal Exchange seeing a sea of red flashes as doubts lurked over China's currency manoeuvres despite assurances by Beijing.

Past the midway point in trading, three-month delivery contracts of primary aluminium (down 1.0%), copper (down 1.1%), lead (down 1.3%), tin (down 0.5%) and zinc (down 0.9%) were all trading lower, with nickel being the only exception trading up 0.3%.

In real terms, the yuan has gained over 50% against all three of the other BRIC (i.e. Brazil, Russia, India and China) currencies in the last decade with its valuation looking increasingly unsustainable as the others have seen their currencies tumble, according Societe Generale (Swiss: 519928.SW - news) analysts.

Elsewhere, precious metals were trading up with safe haven demand lending marginal support to prices. COMEX gold for December delivery was up 0.58% or $6.40 to $1,119.10 an ounce, while spot gold was up 0.55% or $6.08 to $1,121.15 an ounce.

COMEX silver was also up 0.57% or nine cents to $15.30 an ounce, while spot platinum was 0.16% or $1.63 higher at $993.88 an ounce.

Finally, on the agricultural commodities front, CBOT corn (up 0.73%), wheat (up 0.24%), ICE cocoa (up 0.42%) and ICE cotton (up 0.64%) futures were all trading up, while CME live cattle was down 0.68% or $1.02 at $146.85 per pound.

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