JPMAM and BlackRock repudiate commodities bubble

JPMorgan Asset Management and BlackRock commodities managers have dismissed concerns of a growing bubble in the sector, claiming demand will continue to sky-rocket.

Ian Henderson, manager of the £1.7bn JPM Natural Resources fund, said: "A few years ago, nobody thought we would be where we are at the moment and who knows where we are going.

"But at the moment there are some very real shortages and people are prepared to pay what they are paying.

"The energy sector is not showing the current price of oil in its valuations. It is ridiculously cheap today - most companies are representing an oil price of about $60 a barrel, when its currently costs double that."

Evy Hambro, who co-managesBlackRock's £1.52bn Gold & General fund alongside Graham Birch, agreed. "We continue to see strong demand growth in copper, nickel and a number of other commodities," he said.

"There is a fairly weak supply over the medium term and, as a result, the imbalance means there will be a deficit, which will be good for commodities prices."

He added the recent falls in both copper and gold prices were corrections after reaching "very strong prices".

But the manager dismissed those who had been warning of a bubble being formed as doom-sayers.

"Those same people saying it now are those that have been saying it every year for last five years," said Mr Hambro. "Most analysts forecast weaker demand and growth in supply, but the situation hasn’t changed this year."

As well as the inefficiencies of retrieving commodities, Mr Henderson argued there were other issues that reduced supply and kept demand high.

"Political risks are increasing substantially," he said. "Places like the Democratic Republic of Congo, Ecuador, Venezuela have been cancelling licences. It also looks increasingly likely that something will kick off with Iran in the next year. Even just the tensions could be very destabilising to the Middle East."

The managers, both of whom invest in companies rather than the commodities directly, said opportunities at good valuations were still available.

Mr Hambro highlighted continued M&A activity in the sector as testament to this. "Companies we are invested in are producing huge amounts of cash flow and profits for their shareholders," he said.