Credit Suisse Points to Weakening of Commodity Fundamentals in May

Mild June forecast, weakening of Brazilian currency, and loosening of Indonesia’s export restrictions contributed to worldwide losses, report says.

Commodities softened in May, with fundamentals weakening for many sectors, Credit Suisse Asset Management reports. Total return on the Bloomberg Commodity Index was also negative for May, with 14 of the index’s 22 commodity inputs registering losses.

The Bloomberg Commodity Index’s constituent groups are energy, grains, industrial metals, precious metals, softs (including sugar, coffee, and cotton), and livestock. Of these groups, energy has the largest weighing on the index, at 30.57%.

Looking into particular commodity sectors reveals the following:

Natural gas led the energy sector down, with the sector off 3.28%, as forecasts for a mild first half of June led to a drop in expectations for demand from cooling requirements.
Agriculture was down 2.17% as producers sold off their holdings of sugar, soybeans (and its byproducts), and coffee, amidst the Brazilian real’s weakening.
Industrial metals saw a 1.04% dip, as a result of a decline in nickel, which came about as Indonesia loosened its export restrictions.
Precious metals was up 0.5%, with gold and silver glittering bright to investors as safe havens in the face of multiple terrorist attacks, and geopolitical tensions with North Korea.
Livestock was up 7.42%, as a result of a jump in lean hogs thanks to the USDA’s reports on reduced pork production, and a decline in stored frozen pork in April.

Nelson Louie, global head of commodities for Credit Suisse Asset Management, said, “US exploration and production companies continued to grow crude oil exports. As the global supply and demand balance of crude oil continues to tighten, partially due to the extension of the OPEC-led production agreement, the US should be increasingly called upon as the marginal supplier to the world.”

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Credit Suisse also expects that a change in government staffing could help ease restrictions on nickel mining in the Philippines. In the livestock sector, exports of beef and pork were robust in May, and China’s opening up to beef exports could help this trend gain. Credit Suisse believes that “stronger demand and food quality concerns may be underpinning this shift in stance.”

Tags: Commodities, commodity index, Credit Suisse

The Cambodian government has released its strategic plan to develop the country’s financial sector over the next 10 years, which includes creating a national pension fund.

Speaking at the launching ceremony of its ambitious 109-page report, “Financial Sector Development Strategy 2016-2025” last week, Cambodian Economy and Finance Minister Aun Pornmoniroth said the plan is the third update since the country adopted its first financial development strategy in 2001, according to Vietnam’s state-run news agency The Vietnam News Agency.

Pornmoniroth said that developing the financial sector is one of the main economic and financial goals of the Cambodian government, adding that it has an important role in maintaining macroeconomic stability, and contributing to the country’s long-term economic growth.

Despite its length, the plan doesn’t go into great detail, as the executive summary said it was intended to be “flexible to respond to changing conditions,” according to Cambodia Daily.

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But the report does reveal that, in addition to the proposed pension fund, the government is interested in a wide range of initiatives, including creating a social security fund, selling government securities, developing an early-warning system for external market shocks, updating a national strategy for microfinance institutions, and promoting financial literacy.

One of the report’s more lofty goals is to create a “Social Protection Law” and “Pension Law” to be drafted by 2019 and implemented by 2022, according to Cambodia Daily. A mandatory pension fund for the private sector is expected within the next 2 ½ years, according to the report. This could include passing laws that require employers to putting a percentage of their employees’ salaries into pension funds, which would be managed by banks or other financial institutions.

The report also proposed streamlining the issuance of land titles for security and debt collateral, creating a commodities market, developing a consumer protection agency and a commercial court chamber, and seeking the listing of financial institutions and small and medium-sized enterprises on the country’s nascent stock exchange.

In recent years, Cambodia has moved closer to lower-middle-income status through strong economic growth, according to the Asian Development Bank (ADB). The poverty rate plunged from approximately 50% in 2007 to below 20% in 2012, reports the ADB. However, more than 70% of Cambodians still live on less than $3 a day, which means that many of them remain vulnerable to falling back into poverty.

The Cambodian economy grew by an estimated 7% in 2016, matching its growth from the previous year, and is forecast to grow by 7.1% in both 2017 and 2018.

Tags: Cambodia, Economy, Pension, Pornmoniroth