Shift focus to precious metals, says JP Morgan chief strategist

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Longer-term inflation fears and a slowdown in the developed markets have boosted the attractiveness of precious metals, according to JP Morgan Asset Management’s chief markets strategist.

In a market insight report for August, Rebecca Patterson said the case for investing in supply-constrained commodities – such as gold, crude oil, copper, platinum and palladium – would grow markedly as investors looked for opportunities amidst wider macroeconomic difficulties.

The monthly insight document was based on encouraging investors to think differently about their approaches given the exceptional circumstances of the developed markets over the last month.

Patterson said: ‘In a world where central banks are biased towards printing more money, keeping longer-term inflation fears alive, precious metals stand out.’

‘In addition, we would focus on more supply-constrained commodities. Even in the event that demand from developed markets falls more than expected, the combination of structural emerging-market demand alongside limited supplies should help cushion any fall in prices.’

Commodities are likely to be supported in a broad sense by central bank diversification and investors looking beyond traditional stocks and bonds, Patterson added.

Emerging markets

Thanks to a slew of tightening measures across the region, emerging markets themselves were also touted by Patterson as an area worth considering.

‘Emerging markets today – on average – have much stronger fundamentals than developed markets,’ she said. ‘They also play a greater role in the broader global economy today than they have in past economic cycles.’

Patterson said this was most noticeable in the percentage of global consumption represented by emerging markets now being larger than the percentage from developed markets.

Another area investors should pay closer attention to, according to Patterson, are emerging market bonds as she believes them to have relatively higher yields and better underlying fundamentals than their western counterparts.

She pointed to the fact that EM fixed income funds continued to receive steady, large capital inflows even as global growth uncertainty ran rampant.