LONDON (Reuters) - Investment flows into commodities turned positive in January after heavy withdrawals the previous month, boosting hopes that money entering the sector will rise this year from the weakest levels in nearly a decade in 2011, Barclays Capital said.
Commodities saw $7.7 billion of net divestment in December, Barclays estimated, after many funds suffered heavy losses in volatile markets, but sentiment has improved this year amid reduced concerns about the European debt crisis and a hard landing of the Chinese economy.
"Towards the end of last year we did see a lot of liquidation of commodity holdings by institutions, by hedge funds and by retail investors who'd been buying things such as exchange-traded products," said Kevin Norrish, managing director of commodities research at Barcap.
"So far this year, the preliminary data suggests that things are starting to improve, and we're starting to see a recovery of investment flows," he told a briefing.
He declined to give financial figures for the estimated commodity flows in January because they were preliminary data.
Almost half of investors who took part in a survey about commodities released by Barcap on Monday either cut exposure to the sector completely or scaled back investments during the previous 12 months.
Commodity investment last year slid by 78 percent last year to $15 billion, the weakest level since 2002, according to estimates by Barcap.
The survey showed the main reason for getting out of commodities last year was general risk aversion. For this year, most investors polled expected investment in the sector to increase in 2012, but a significant minority of about 30 percent forecast a drop.
"After a year that's been very, very weak, you're going to get a rebound, but it's not going to get back up to those peak levels that we saw when market conditions were different," Norrish said.
Improved global economic conditions, especially less worry about China, the world's biggest consumer of raw materials, are likely to help commodity prices rebound and draw investors back to the sector, he added.
The 18-commodity Thomson Reuters Jefferies CRB index .CRB shed 8.3 percent last year, but has gained about 6 percent so far this year.
More than half of investors surveyed expected to initiate or increase commodity exposure over the next three years, about 30 percent planned to hold at current levels and 7 percent expected to reduce exposure.
Barcap cautioned, however, that answers in the survey may be slightly tilted in favour of commodity investing.
"We recognise that there's some bias in the results, because the people that are responding have a natural interest in commodities. They're either thinking about investing, they have just invested or they have been invested for a long time," said Martin Woodhams, head of commodity institutional sales.
Even with last year's decline, the amounted invested in commodities has surged since 2001, attracting the attention of regulators and politicians who blamed speculators for fuelling a spike in food and energy prices.
Annual investment flows touched a peak in 2009 and 2010, when $77 billion and $67 billion poured into commodities respectively. Total cumulative assets under management were $399 billion at the end of last year, up from only $10 billion in 2001.
Investors in the survey regarded politics and excess global liquidity as the biggest factors that could send commodities surging, while they saw a hard landing in China as the main threat to commodity markets.
Crude oil was chosen as the top pick for 2012, and U.S. natural gas was tipped as the worst expected performer.
Gold and copper divided the investors, appearing high up in both lists. Gold ranked second and copper third as a top pick, while gold also came in third and copper fourth as a least favourite commodity.
editing by Jane Baird