GLOBAL - Equities from the resource sector are set to lure more investors during the coming months.
Commodities such as gold and oil will attract interest owing to their defensive qualities amid volatile markets which have seen the likes of the MSCI World Index, for example, fall 16% in US dollar terms since the start of the year.
According to Baring Asset Management (BAM), emerging market companies are particularly alluring due to their lower production costs, and comparatively fair values.
John Payne, the fund manager of the Baring Global Resources Funds, said: “The party is not over for the sector; we expect relative outperformance versus global equity markets to continue into 2003. We believe that the superior returns of emerging market companies will persist.
“This is particularly relevant to the Russian oil companies utilising Western technology to enhance productivity, driving costs down and production up. Furthermore, emerging market companies are benefiting from stronger growth prospects than developed peers but their valuations have yet to reflect this potential. Elsewhere, with the increasing political and economic uncertainty, especially in the Middle East, and instability in the global financial markets, gold has reasserted itself.”
BAM adds that the US’s concerns about the security of oil supplies in the current climate and improved corporate governance also reinforce this view.
The recent strength in gold is expected to be sustained due to US dollar weakness and a further reduction in the hedging position of producers, as well as a lack of new supply.
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