What Caused the 2016 Commodity Rally?

After five consecutive years of material negative returns, commodity-related investments outperformed the broader equity and fixed income markets in 2016

Fatima Khizou 20 January, 2017 | 8:00AM

Commodities have recorded strong gains after reaching a decade low back in January 2016, prompting a renewed interest in the sector. After five consecutive years of material negative returns, commodity-related investments outperformed the broader equity and fixed income markets in 2016.

Why Did Commodities Do So Well?

The strong outperformance of commodity and resources equities was driven by several factors. Slightly reduced concerns around the Chinese economic outlook, diminishing expectations of US interest rate rises and encouraging signs on the supply and demand fronts have all contributed to a positive backdrop for the sector.

Indeed, the Chinese government’s stimulus efforts at the start of the year have resulted in improved macroeconomic data and increases in property market prices, boosting many industrial metals and bulk commodities prices. Iron-ore has gained over 30% as Chinese steel demand increased in anticipation of the construction season. Even more remarkable, the price of coking coal increased by more than 130% in 2016.

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About Author

Fatima Khizou  is an Investment Research Analyst for Morningstar

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