Citigroup Inc. recommends investors to raise their investments in industrial metals through bonds and other fixed-income utilities because the downfall of the stock market and caught-on volatility turn a green light for these good opportunities.
There are “weighty economic arguments” to await good metal dynamics, due to the likelihood of flourish of the growth of the global economy, which will instigate inflation risks, according to a bank report launched on Tuesday. Demand-driven inflationary pressures are good signs for real assets, such as commodities, because it eggs-on the cost of production and incites the price. In the meantime, this pressure is a poison to assets such as bonds, Citigroup adds.
Global stock markets keep falling after a large-scale sell-off of US securities, embracing the largest six-and-a-half-year decrease in the Dow Jones Industrial Average. The downfall is a sign of fears about developed inflation in a growing economy and of faster than expected increase in interest rate. Even though the commodity markets were also affected by the collapse, Citigroup believes that now is the high time to penetrate the metal industry.
The analysts of the bank, headed by Ed Morse, believed that the recent sale in the credit and stock markets, as well as the increase in the VIX volatility index, paves the way for the development of industrial metals. In particular, he thought that for investments in physical assets such as raw materials goods, the strong argument within a macroeconomic cycle stays intact.”
Optimism Citigroup shares and Goldman Sachs Group Inc. last week launched the most favorable condition for investment in raw materials since 2004-2008. According to the forecast of the bank, copper by the end of the year may increase in price to $8000 per ton. Due to the supply deficit of copper, the price in copper moved about $6000 a ton in the second half of 2017, with peaks of touching on $7000 a ton before the end of the year, and above $8000 a ton before the end of 2020. JPMorgan Chase&Co., previously speculate a decrease happened in copper prices, now expects a growth in the price of the metal to $7,700 by the fourth quarter. Billionaire Jeffrey Gundlach from DoubleLine Capital LP also took commodities as one of best assets to invest in as they also become more valuable and expensive in the last phase of the business cycle.