Energy Info

London, 5 November 2011

A risk rally across all sectors has lifted commodities in the past month. However, Barlcays Capital think it unlikely that the trend will be sustained. Although growth prospects look a little stronger in the US, they are much weaker in Europe and the picture for China is "still worrying" according to Kevin Norrish, Head of commodities research. "Moreover, the European debt situation shows no sign of resolution so we are continuing to favour defensive positioning, reducing weightings in those commodities likely to suffer most from further waves of pessimism."

The main change in this month’s sector weightings is a shift to a small underweight in base metals, which were amongst some of the biggest price gainers in recent weeks as short positions predicated on a slowing global economy were closed out.

"Our other rankings are unchanged meaning that in addition to our underweight in base metals, we are running a sizeable overweight in precious metals (where financial market conditions favour continued outperformance) a small overweight in energy (where low crude oil inventories and the approach of northern hemisphere winter should limit the oil price downside) and an underweight in agriculture (where weather threats appear to be easing and recent harvest news has been relatively good, especially in grains)."

SinceBarCap's last reweighting on 7 October, the BCRI is up by 6.7%, outperforming the neutral portfolio in which weights are held constant, which is up by 6.5%. Applying the BCRI rankings to the DJUBSCI weights in order to rebalance that index results in a 1.3% outperformance in October. In the year-to-date that outperformance now stands at 2%.

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