Uneven Recovery in China Warrants Broad Commodities Exposure

When it comes to getting commodities exposure, sometimes putting all your proverbial eggs in one basket can have adverse effects. The uneven recovery in China, for example, could mean certain commodities suffer reduced demand.

One metric of economic growth, China’s manufacturing index, came in below expectations for the month of April. This could mean that China’s re-opening could be losing momentum..

“The surprise contraction in China’s manufacturing index in April, coming after first quarter growth exceeded expectations, underlines the uneven nature of the recovery in the world’s second-biggest economy,” Reuters reported.

The country’s re-opening following government-mandated lockdowns meant the economy could move forward. It appeared to be doing so before April’s manufacturing data was released. Now, the positivity surrounding China’s re-opening could be dissipating.

“This is a mixed PMI report and suggests that China’s post-Covid recovery has somewhat lost steam and calls for continued policy support,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd, in a Bloomberg News report.

Balance Out Uneven China Commodities Demand

Getting broad commodities exposure can allow a portfolio to balance out the uneven demand, should certain commodities falter during China’s recovery process. For added insurance, an active strategy may add flexibility. Active commodities ETFs include the Neuberger Berman Commodity Strategy ETF (NBCM).

NBCM’s active management allows for fluidity when adding commodities exposure. Portfolio holdings decisions sit with seasoned managers, who can change holdings when market conditions warrant.

The active management adds a layer of flexibility to an investor’s portfolio, especially given commodities’ volatility. Unlike indexes, NBCM’s holdings can be tailored for greater exposure to certain commodities exhibiting strength. Vice versa when weakness arises.

Given this, if a slowdown in China’s economic activity warrants safe haven assets like gold, NBCM can add more gold exposure. Given the economic uncertainty, gold is actually the current top holding in the fund’s portfolio of commodities.

The fund invests in commodity-linked derivatives with an active risk-balanced, diversified approach that seeks to minimize the effects of market volatility — which is connected to the commodities market. Tactical exposure adjustments expand potential alpha sources by considering top-down macro variables among commodity sectors and individual commodity outlooks to take advantage of short- and long-term opportunities.

For more news, information, and analysis, visit the Commodities Channel.