Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

AROUND the start of this year, commodities were looking good. So good, in fact, that many foresaw a new commodities ‘supercycle’ - a prolonged period of rising prices driven by some almighty upsurge in demand.

For a while, things looked promising. Commodities has been the best performing asset class in the first six months of 2021. Now, well into the second half of 2021, price rises have lost steam and many - including copper, often considered the bedrock of economic growth - have fallen in recent months.

Is this a temporary blip, or the end of the commodity supercycle?

For a commodity cycle to become truly super, there has to be some structural shift in demand that keeps prices ascending for years. During the 2000s supercycle, China’s rapid growth - during which annual economic growth sometimes exceeded 10% per annum - caught the world’s supply of commodities short and spurred an elongated period of price growth as producers struggled to keep up.

Investors had their eyes on China and the commodities it was sucking up, as it cemented itself as the workshop of the world.

This time around, proponents saw the transition to green energy as a prime catalyst for another supercycle. Roads, bridges, rail links, solar parks and wind farms need industrial commodities, along with some precious metals like silver. Combine that with massive government stimulus packages investing in infrastructure, as well as renewed post-pandemic demand, and hopes were high that we were entering a new age for commodities.

Now, that’s looking less certain, and China is at the heart of things again.

China still counts for over half of international demand for commodities. Its role in the global commodity market is simply too big to not be part of this story.

But, so far, China is missing its cue. The country’s post-pandemic recovery has faltered since the start of this year. Noises around tightening monetary policy have jittered markets, while fears over variants and prolonged restrictions have added to those concerns. None of which is good news for commodities.

China’s importance was underscored yesterday by the country’s industrial production figures. A sharp slowdown in Chinese factory output sent global stock markets downward, with miners faring worst. Rio Tinto, Glencore, BHP and Anglo American were among the FTSE 100’s biggest fallers.

This is not to say the commodities rally is over. The green energy transition will only gather momentum, and demand will be there so long as countries’ reopenings aren’t derailed by Covid variants. The passing of President Biden’s $1 trillion infrastructure bill last week will also prove a boon over the long term. The oil price, meanwhile, looks very strong.

The investment thesis underpinning the commodity cycle still remains strong, albeit perhaps not ‘super’.

If you’re looking for exposure to commodities, a Select 50 choice is the Ninety One Global Gold Fund, which invests in global gold mining company shares.

Or as an alternative to commodities, the FP Foresight UK Infrastructure Income Fund, also on the Select 50, offers an exposure to investment companies dedicated to renewable energy and infrastructure projects.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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