Investors have turned sour on commodities as hopes fade for growth in China and US infrastructure.
Cash has poured out of passive funds that track this asset class following a more negative outlook for oil and metals, resulting in outflows of $72 million in the US and $150 million in the week to 2 June in Europe.
TrackInsight data showed there were total outflows in the last month of around almost $115 million.
Redemptions were fuelled by short term speculative trading. The US Commodity Futures Trading Commission found that bullish speculative investors had reached a peak by the end of February and had since unwound their positions. Their exit was also reportedly timed after US jobs data was released for May and the discovery that, after a 17-year low, the US Federal Reserve was on track to raise interest rates.
The exit from commodities is a drastic U-turn from 2016, when the asset class saw positive inflows for the first time in six years in 2016, as investors wanted to diversify their portfolios and hedge against rising inflation.
China and US concerns abound
This June, the turnaround came as industrial metals were affected by weak iron prices and Moody’s downgraded the sovereign credit rating of China. The Caixin China manufacturing PMI also recorded its first contraction in almost a year last week. Hopes for a pick-up in Chinese economic activity have also been dashed as the focus in Beijing has turned to curb lending within the so-called shadow banking system.
Investors had also been hoping for newly-elected US President Donald Trump to invest heavily in infrastructure, but he has so far failed to sign significant legislation to move the economy forward.
Oil, gold and silver see outflows
Another concern is oil prices, which remain relatively low despite Opec agreeing to cut production last November. Analysts predicted earlier this year that Brent oil would rise from its current $50 per barrel level to about $60 by the end of the year. But inventory remains high and the US is continuing to produce shale gas.
The safe haven of gold has also seen outflows in a risk-off environment and as investors take profit from the yellow metal’s strong performance this year. Gold is up 13% so far in 2017, at just under $1,300 per ounce, and silver, its more volatile cousin, is up 11% over the same period. Below, the SPDR Gold Shares saw outflows over the last month of more than $200 million by 1 June.