Robust demand from emerging markets and a loose US monetary policy should boost commodity shares in 2011, though base metals could face a short-term hit as China acts to cap inflation, a senior equity trader said. Daniel Harris, head of dealing at London-based H2O Markets, said precious metals miners looked likely to benefit from further metal price gains in 2011, after a 28 percent rise in gold and an 82 percent rise in silver in 2010.
"A possible continuation of expansionary policies, particularly by the United States, given its slow recovery of the domestic economy and deflation, is likely to push the demand for bullion and silver from investors fearing inflation," he said.
"Precious metal miners such as Fresnillo provide clear market-based barometers to illustrate continued rising commodity prices, driven by the eurozone debt fears. However, we need to watch out for recent signs of stretched demand."
Harris said possible moves by China, the world's largest commodity consumer, to tighten its monetary policy in an attempt to curb high inflation is likely to temporarily cap commodity prices, possibly hurting copper and iron ore prices.
"In the mid- to long-term, however, commodity miners such as Rio Tinto, are set to benefit from rising metal prices as a result of past underinvestment and growth in emerging markets," he added.
Among other predictions, Harris said a possible slowdown in the UK economy next year threatens to reverse the improvements in impairment charges, which have been key drivers for improving profits at British banks in 2010.
"Furthermore, the possibility of continued lower interest rates throughout 2011, coupled with higher funding costs, are likely to narrow net interest margins."
"We believe banks such as Lloyds and RBS will continue to underperform, while the sector picks are those with exposure to regions outside Britain and best able to weather the possible adverse domestic challenges."
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