Kiwi commodities missing out on inflation-hedging opportunities

New Zealand is years behind Europe when it comes to commodity investment and is missing out on significant inflation-hedging possibilities as a result, according to one of the world's largest commodity investment managers.

Friday, August 7th 2009, 8:41AM

by Sonia Speedy

Guillaume Le Fur, partner and chief executive of Swiss-based Diapason Commodities Management has been promoting commodities and meeting prospective clients in New Zealand with Louis Boulanger of investment strategist Louis Boulanger Now.

The pair say New Zealand is where Switzerland was five or six years ago in terms of commodity investment. Today the overall average asset allocation in commodities is around 15% in Europe compared to a negligible exposure to real commodities in New Zealand.

Le Fur is currently bullish on energy, base metals and the precious metals - excluding gold, which he suggests there is too much speculation around. He prefers silver which has more industrial utility. However, in the long term he believes gold will increase and may go to US$1,500 - US$2,000.

Boulanger believes interest from the New Zealand financial services industry in commodities is already on the rise as it searches for tangible assets. He adds that investors often assume they have achieved commodity exposure by buying equities such as BHP Billiton. However, this is not a true form of commodity exposure, he says.

Historically commodities are uncorrelated with other asset classes and offer the advantages of being tangible, diversifying portfolio risk and of liquidity. Le Fur says they also act as a hedge against inflation as when inflation rises, so too do commodity prices. He believes commodities are currently "extremely cheap" when inflation adjusted.

While commodity prices collapsed in the second half of 2008 due to deleveraging and decreased demand, Le Fur says there are now "huge issues" on the supply side due to problems around financing for producers. He says inventories remain low while demand has begun to increase in the US and in Brazil, India and China.

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