A profitable investment over years

If you are an investor and were not in the commodities sector in the past seven years, you may not have made any money, says Jeremy Gardiner, director at Investec Asset Management.

If you are an investor and were not in the commodities sector in the past seven years, you may not have made any money, says Jeremy Gardiner, director at Investec Asset Management.

According to Gardiner, the second quarter of 2008 continued along a positive trend that has now been in place for seven years.

The resource-heavy JSE All Share Index maintained its positive façade, as commodities kept it positive (up 6,4 percent so far this year).

While times were tough for other sectors such as financials, the economy or property, commodity investors smiled all the way to the bank.

For instance, resources were up 33 percent so far this year while financials were down 25 percent, creating what Gardiner describes as an enormous deviation.

Despite the positive developments around commodities, Gardiner advises against reacting emotionally as this often comes at a significant cost.

The two primary risks investors are currently facing is being overweight either in commodities or cash, says Gardiner, warning of a possible significant correction within the next two years.

He says though commodities are an important part of any investment portfolio, your exposure should be appropriate to your risk profile.

While South Africa's first quarter GDP growth was relatively robust, Gardiner is of the opinion that non-commodity growth is slowing fast.

Expect another three months of bad inflation numbers before inflation peaks, he says.

Though interest rates may already have peaked, with the possibility of another 50 basis points on our doorstep, Gardiner says the oil price would be central in determining the direction to go.

"Food prices are stabilising, but if oil goes for another significant rise from here, everything else rises as well."

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