Last year proved difficult for investors with large exposure to commodities and to the US dollar but what does 2016 hold?
In a video interview with Investment Adviser’s Eleanor Duncan, Frances Hudson, global thematic strategist for Standard Life Investments, discussed commodities and central banks.
She said: “With oil, as for every commoditity, part of the problem [for investors] has been dollar strength as it is dollar denominated. If you have a strengthening dollar, commodity prices will come under pressure and, during 2015, the dollar did strengthen considerably.”
However, she said that most of the problems with the oil price in 2015 were supply-driven; firstly with the US declaring it was self-sufficient for many years, and then from the Middle East with Iran potentially and Iraq coming on-stream.
Ms Hudson added: “Demand has not been particularly strong elsewhere. With moderate to weak global growth, and weaker data in terms of energy-intensive improvement, those areas with stronger growth haven’t really been the ones demanding a lot of energy.”
Ms Hudson said it was interesting to consider where the prices would go this year. “I think that the two common drivers - investor interest and the dollar strength - have been dominant.”
As a result, Standard Life Investments has been underweight in sectors such as energy, and said this has been the case for some time.
Although there was the possibility that energy exposure could rise, she said there would have to be some significant factors, such as demand, for example Opec deciding to reduce production, or Saudi Arabia deciding to temper its production.
Another driver could be consolidation in the US oil sector, as this is coming under pressure.
On the question of central banks, she said the central banks seemed to be playing to the markets more than they have been, and more than they perhaps should.
She added that the US Federal Reserve could have been more open or more consistent in 2015.
eleanor.duncan@ft.com
