As some observers warn of a prolonged bearish outlook for the commodities space, with notable weakness in the energy market, investors can hedge against the potential risks with inverse exchange traded funds.
According to Morgan Stanley Investment Management Inc., the commodity bear market could last for many years, with oil prices dropping as low as $35 per barrel, reports Rakteem Katakey for Bloomberg.
Weighing on commodity prices, China, the second largest economy in the world and biggest consumer of raw materials, has experienced an industrial slowdown, which diminished demand growth.
“China continues to be the central player as far as demand is concerned,” Ruchir Sharma, Head of Emerging Markets at Morgan Stanley Investment Management, told Bloomberg. “Even if the Chinese economy stabilizes, the industrial part of the economy is likely to be much weaker.”
Meanwhile, depreciating foreign currencies, like the Russian ruble, and a stronger U.S. dollar have helped shield foreign producers from lower prices, which has deterred some oil drillers from cutting output, according to Sharma.
“A long winter in commodities is what we have to be prepared for,” Sharma added. “From places like Russia to Australia the currencies have fallen a lot and so the marginal cost of production for some of these commodities in those countries hasn’t fallen that much.”