* End of money printing will ensure decoupling
* Fundamentals for oil, other commodities well-balanced
By Simon Falush and Eric Onstad
LONDON, Jan 30 Commodities have decisively
broken their lock-step with other assets, which lasted from 2008
to 2012, and now lower volatility and an expected end to central
bank money printing could ensure the correlation does not
The 30-day correlation between the Thomson Reuters-Jefferies
CRB commodities index and the S&P 500 equities index
has slid to 0.24 from 0.7 in late November.
Many commodities markets have seen lacklustre activity and
range-bound prices in January, and many investors are opting for
equities, which have been buoyed by recovering global growth.
"This year we have seen quite a lot of banks having their
first-quarter review, and for the first time some of them are
wondering if the bull market seen in some commodities, whether
it is over," said Gabriel Garcin, a portfolio manager at
Europanel Research & Alternative Asset Management in Paris,
which invests in European hedge funds and CTAs.
"Some banks are trying to sell this to their clients. Indeed
since the beginning of January we have been seeing a big
rotation and a very nice rally in equities."
The S&P 500 vaulted above 1,500 for the first time in five
years on Friday on strong U.S. earnings reports. It has gained
11 percent since mid-November, while the CRB has only added 3
Central banks in the biggest industrialised nations have
responded to a crisis of confidence in global markets since 2008
by printing trillions of dollars, and the repeated injections of
cash led investors to pile into all assets considered as risky.
TAPS TURNED OFF?
Many analysts expect central banks to turn off the taps
towards the end of this year and into 2014, which means the
four-year phase of so-called risk-on, risk-off trading is
unlikely to return.
"The S&P 500 is very close to record highs, so there are
increasing signs that they will stop QE ... so that will take
away a key reason for the close relationship (between equities
and commodities)," said Olivier Jakob at Petromatrix in Zug,
Many investors have cooled towards commodities. Their
supply-demand scenarios are more balanced than in previous
years, when surging demand from China and shortages combined to
create volatile price movements.
Brent crude oil has gained around 2.9 percent in
January compared to a 5.7 percent gain for the S&P 500.
"Equity markets have a totally different dynamic from oil,"
said Filip Peterson, a commodity analyst at SEB in Stockholm.
"Equities are looking at the growing economy, while for oil
we're looking at factors like the marginal cost of production,
while there is over-production from OPEC and pressure on Saudi
to cut (output)."
Another factor limiting the correlation between commodities
and equities is lower volatility. The CBOE volatility index
has dropped to its lowest since 2007, a time when
correlations between equities and commodities also was much
"With oil trading in a relatively steady range in the last
two years, it's not surprising that the correlations have come
down," said Robert Farago, head of asset allocation at Schroders
"There's sufficient supply of oil and metals but also
reasonable economic growth, so demand is not going to collapse
either. There's a good economic rationale for oil being in a
range of $80-$120 (per barrel)."
While many investors are shunning commodities as an asset
class, some are still hunting individual markets where supply is
constrained, said Andrey Kryuchenkov at VTB Capital in London.
"As far as your typical investor is concerned, they say why
would I want to be in commodities if the commodity index will
maybe only be slightly better. People are turning to individual
supply-demand specifics, so they will be picking and choosing
instead of just getting into a basket of commodities."
Gold, which has been the top commodities pick by many
investors in recent years, is also losing its attraction as a
safe haven asset. Spot gold has shed about 7 percent
since early October, when it failed to break through the $1,800
an ounce mark.
"The reason gold is underperforming is simply because people
are saying, 'Should I be in gold when I might get better returns
in platinum or palladium or put my money in mining stocks?'"
(Graphics by Vincent Flasseur; editing by Jane Baird)