Top Banks Bullish On Commodities

This year global commodity markets have continued to perform far better than most would have dared to hope. Now top international banks are coming with more analysis to substantiate the bullish trend in commodities.

Societe Generale (OTC:SCGLY), France's second-biggest bank, has told its clients to be bullish on commodities, stay with stocks and "anything but cash" in 2010. SocGen's Chief Strategist Alain Bokobza sees an ongoing momentum for growth in the U.S. with employment growth, as well as the emerging economies.

The consensus seems to be we are heading towards a bond market crash in 2010; nevertheless, fear of a double-dip will prevent a bond market crash. The U.S. Federal Reserve and G4 countries are expected to stay on a near-zero interest rate for much longer than expected, which makes yield curve play attractive. Source

SocGen's Main Advice For 2010

With near-zero interest rates, getting out of cash and into other riskier assets such as equities or commodities should be the strategy this year.
* Anything but cash
* Stay in equities
* Expect rising M&A cycles
* No bond market crash
* Yen carry-trade
* Be a commodity bull

The global economic recovery will boost demand for raw materials and this will keep commodity prices buoyant this year, according to Bank of America (NYSE:BAC)-Merrill Lynch head of global commodity research Francisco Blanch.

The biggest risk to the commodity rally would be a “double-dip” in economic growth. “Cyclical pressure will be the dominant factor in driving the commodity market over the next two years,’’ said Blanch.

He believed that the commodity “super cycle” is far from over, with the global economy expected to grow 4.4% this year and expand by another 4.5% in 2011. “We favour energy and industrial metals this year,’’ he said. Source

A weak U.S. dollar and a "tidal wave" of investment inflows should lead to a huge year for exchange-traded commodity prices, according to Scotia Capital analyst Lawrence Smith. He wrote that 2010 may be the peak year for exchange-traded commodities, as the inflow of dollars into them are supported by improved economic data.

As a result, he has made huge upward revisions to his price forecasts. He is not as bullish on commodities that are not exchange-traded (such as coal and uranium) in 2010, because they have less liquidity and cannot react as fast to improved fundamentals. But he projected higher prices for those metals in 2011, which is when he expects exchange-traded metals to moderate. Source