Emerging market turmoil keeps pressure on commodity ETPs -BlackRock

Tue Feb 11, 2014 6:36am EST

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* Investors withdraw $1.7 bln from commodity ETPs in January
    * Gold ETP outflows slow to $860 mln
    * Silver, industrial metals enjoy net inflows

    By Claire Milhench
    LONDON, Feb 11 (Reuters) - Emerging markets turmoil drove
investors away from commodity exchange traded products (ETPs) in
January due to concerns about demand growth, but gold outflows
slowed as its safe haven status was revived.
    Some $1.7 billion was withdrawn from commodity ETPs in
January global data from BlackRock, the world's biggest asset
manager, showed. ETPs, whose value is linked to moves in their
underlying assets, offer an easy route into commodities and
allow asset managers to make quick, tactical shifts.
    Emerging market assets faced intense selling pressure last
month following the U.S. Federal Reserve's decision to wind down
its monetary stimulus. This will remove some of the cheap money
that has flooded into developing economies over the last five
years in search of better returns. 
    Emerging market equity ETPs ended January with $10 billion
of outflows, the largest monthly outflows on record, BlackRock
said. Investors were particularly concerned about countries with
high current account deficits - Brazil, Indonesia, India, Turkey
and South Africa.
    "A number of central banks in developing countries have
tried to stem the general flight to quality by raising interest
rates, but this has largely served to increase worries over
growth and stability for weaker economies," BlackRock said.
    If growth weakens, this could reduce the demand for energy,
agriculture and base metals. A softer-than-expected Chinese
manufacturing PMI reading of 49.6 contributed to the sell-off,
as this confirmed lingering fears of a slowdown in domestic
demand, BlackRock added.
    
    GOLD BEGINS TO PERFORM
    Meanwhile gold ETP outflows slowed to $860 million from $3.6
billion in December. "Investors turned to gold as emerging
markets turmoil accelerated," said Nick Brooks, head of research
and investment strategy at ETF Securities, an issuer of ETPs.
"We saw that in the price performance. It was one of the few
assets to see a positive return in January."
    The S&P GSCI Gold index was up 3.1 percent in January,
whilst the S&P 500 was down 3.6 percent, its worst monthly
decline since May 2012. Gold also outperformed bonds and
the dollar. Brooks noted that inflows into gold ETPs on the ETF
Securities platform hit their highest level in five months in
the week ending Jan. 30, at $44 million. 
    Silver attracted global net inflows in January of $55
million after starting the year at below $19 an ounce. "It's
seen as a good entry point," Brooks said. 
    "And with the gold price stabilising and starting to rise,
silver is seen as a higher beta way to play this improving
sentiment towards gold." Silver has a higher volatility than
gold so if gold is expected to rise, tactical investors will
often move into silver more aggressively, he said.
    Surprisingly given the emerging markets sell off, industrial
metals ended the month with net inflows of $143 million, but
Brooks said this masked a change in sentiment mid-month. In
early January, there were strong flows into copper and nickel
but these tailed off as emerging market problems mounted. 
    The S&P GSCI industrial metals index was down 4.3 percent in
January, with aluminium suffering the biggest hit. 
    On the energy side investors pulled money from natural gas
ETPs after strong price gains due to weeks of sub-zero
temperatures in North America, which ran down stocks. "We saw
some big inflows into natural gas ETPs at the end of 2013 and
now they are selling to make a nice return," Brooks said.
    In February investors have continued to put money into gold
ETPs, there have been inflows into short natural gas ETPs and
some flows into coffee and sugar, according to data from ETF
Securities. "But we need to see some stabilisation of the
situation in emerging markets before investors are ready to move
in more aggressively," Brooks said.
    At the end of January BlackRock's data covered 898 commodity
ETPs worldwide, worth some $114.6 billion.
    
    Global commodities ETPs at end-January (US$ mln)   
 SECTOR                    JAN FLOWS   JAN ASSETS
 Broad/Diversified         -709        16,236
 Agriculture               -52         4,760
 Energy                    -202        6,949
 Industrial Metals         143         1,932
 Gold                      -860        69,147
 Silver                    55          11,096
 Precious Metals Total     -920        84,731
 TOTAL COMMODITIES         -1,739      114,607
 Source: BlackRock   
    

 (Reporting by Claire Milhench, editing by David Evans)
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