As some seemed to believe that commodity prices would fall due to a slowdown in China, it appears that they were wrong.
China’s race for commodities and resources continues as the nation announced that China Investment Corp (CIC) will purchase $850 million worth of shares representing a 15% stake in commodities-focused and Hong Kong-based Noble Group. What’s so unique about this stock purchase is that it enables emerging China to gain access to all parts of the commodity supply chain, from farm or mine production to shipping and marketing. And Noble’s market footprint is expansive, covering 40 countries.
China has been on a buying binge across the raw materials landscape, snapping up industrial metals such as iron ore, copper, alumninum, and zinc and ags such as soybeans and cotton. The move is expected to help China diversify its presence across the commodity supply chain and should enhance its flexibility in managing the supply side of it growing physical commodity appetite. The move will also provide diversification away from its central bank reserves, more than half of which are held in dollar-based assets such as US Treasuries and agency debt.
Several commodity-related ETFs could be impacted by continued growth of demand from China and other emerging economies. Futures-based exposure to diversified commodities baskets can be accessed via DBC and GSG (be advised that GSG recently closed to new share creation and is trading at a premium to NAV) or DBB for base metals. Alternatively, exposure via equity ETFs holding stocks of companies engaged in the commodity arena would include IGE and the recently launched CRBQ. An equity ETF having a narrower focus in the metals and mining space would be XME while MOO could be used to cover equities related to agricultural commodities.
