Oct 22nd, 07, 08:06 AM

bigsale

[News] Singapore cashing in on the biggest commodities boom in 30 years

Singapore’s setting as a major port and its long trading history make it ideally suited to become the heart of a regional commodity business.

SINGAPORE lies at the heart of a resource-rich region that is basking in the biggest commodities boom in three decades.

But ask the average stock investor here what he knows about the commodities trade, and you are likely to draw a blank look.

He would probably know that crude oil prices have rocketed to sky-high levels — briefly touching US$90 a barrel last Friday.

Beyond that, he would have little idea that prices of other important commodities — tin, coal and palm oil, for instance — have all gone up at double-digit percentage rates as well.

And here lies the irony: Any geography student can tell you that South-east Asia is rich in these resources.

The ignorance of the local investor and his inability to ride the commodities boom are all the more galling if one remembers that Singapore’s prosperity in the 20th century was founded on its position as the region’s entrepot.

Great banking families here — the Lees of OCBC Bank and the Wees who run United Overseas Bank — can trace their business roots to the commodities trade.

Of course, that trade of 50 years ago represented a very different world, filled with wily businessmen sitting in stodgy warehouses dotted along the Singapore River, discussing the price of rubber and pepper.

The modern commodities scene features smart young men and women equally at home with trading contracts on their Bloomberg machines or shifting big quantities of the real stuff.

So while the wider investing public remains largely clueless, interest in commodities has exploded, not only among hedge funds but also among mainstream financial institutions — and increasingly, among well-heeled individuals.

This has prompted global investment bank UBS to double its commodities team in Singapore over the past year and relocate employees here from over all the world.

Still, if the general investor looks closely enough, he will find tantalising signs of the commodities boom on the local stock market.

To give a few examples, the share price of commodities supply chain manager Noble Group has rocketed 10 times over the past five years since the boom took off — and made its founder, Mr Richard Elman, a billionaire.

Wilmar International, which owns oil palm plantations in Malaysia and Indonesia, has ballooned into a $28 billion giant since it became listed through a reverse takeover last year.

The smart money sees almost a sure bet in commodities. If China continues to boom, its insatiable demand for raw materials will keep supply tight.

Even if the global economy slips into stagflation — high inflation coupled with sluggish economic growth — as it did in the 1970s, raw materials should still do well, going by what happened three decades ago.

Since 2000, the Goldman Sachs Commodities Index has more than doubled. Even soft commodities — those that are grown rather than mined, such as sugar — have done well. Grains have been a great performer, with wheat futures doubling over the past six months.

Grabbing a piece of the cake

CURRENTLY, there are only a few ways in which a retail investor in Singapore can ride the commodities boom.

He can buy into a commodities fund listed on the Singapore Exchange that is managed by Lyxor, a unit of French bank Societe Generale. This tracks a basket of commodities covering oil, metals and agricultural produce such as cotton and coffee.

Otherwise, he can buy into stocks that are linked directly to commodities such as palm oil or soybean.

For the more adventurous, the world is literally their oyster as they trawl for bargains.

There are giant China miners now listed in Hong Kong such as China Molybdenum and nickel producer Xinxin Mining. To the south, the Australian Securities Exchange is host to the likes of BHP Billiton.

Down the road, banks might offer more commodities-linked financial products to retail investors as they become a mainstream investment, very much like equities and bonds.

Such products could include covered warrants or unit trusts whose underlying assets are base metals or agricultural products such as palm oil.

But a word of caution is needed. The world of commodities is huge and complex, governed by singular peculiarities of demand and supply during particular times of the year.

And the ride can sometimes be turbulent.

Base metals and even gold suffered sharp falls during the correction in May to June last year, again when stock markets suddenly tumbled at the end of February — and yet again when the credit crisis took hold in August.

Still, it would be a pity if retail investors were to miss out on such a great investment opportunity as the commodity business goes from strength to strength here.

As a top UBS executive notes, Singapore’s setting as a major port and its long trading history make it ideally suited to become the heart of a regional commodity business.

This business would also breathe new life into Singapore as the great entrepot of a bustling resource-rich region in the 21st century.

Oct 22nd, 07, 12:59 PM

Asimof

palm oil stocks looks like one of the star performers, especially in the case if Wilmar.