A population boom and urbanisation in emerging market countries will boost demand for natural resources such as water, industrial metals and oil, UK-based wealth manager IAF Securities told Reuters.
To take advantage of booming natural resource prices, IAF launched on August 20 a commodity-linked note that offers investors exposure to miners, oil companies and utilities and guarantees to preserve their initial investment. "There is a finite amount of resources and the demand for these resources are increasing," Adrian Messina, investment manager of IAF Securities said.
"One sure thing that's going to stem from that is price appreciation for these resources," Messina said. Robust demand from China and other emerging markets such as India have driven commodity prices to record highs over the past couple of years.
US crude oil set a fresh record high of $83.90 a barrel last week while copper is expected by some to revisit later this year its peak of $8,800 a tonne set in May 2006. At maturity in six years, investors will receive 100 percent of their initial investment plus any returns.
"You've got a guaranteed product which insulates significant changes in the economies," Messina said. IAF Securities manages about $150 million and is a wholly owned subsidiary of financial services firm IAF Group. Investors sold metals and oil alongside equities over the past few weeks on worries about a global liquidity squeeze and a possible slowdown in the US economy.
However, inventories of industrial metals remain at record low levels and that should support prices, analysts say. Messina said a growing middle class, a shift in life styles and more people moving to cities in emerging markets from the countryside was expected to boost consumer and commodities demand.
"UN research indicates that population will grow 50 percent by 2050," Messina said. "India's population is expected to outgrow that of China and in those regions you don't only have population growth you've got a shift in where people live."
"Obviously this means more houses, building infrastructure which requires metals," he said and added that the longer-term growth story of commodities was attractive.
Long-term prices for metals, also known as incentive prices, looking 10 years or more into the future are expected to remain high. Last week, Barclays Capital raised its average long-term price forecast for copper to $4,500 a tonne, from a previous $3,500 and for aluminium to $2,900 from $2,200 a tonne.
Messina said commodities were a portfolio diversifier and that urbanisation in emerging markets would also mean a change in diets towards a western-style nutrition, which also meant higher demand for soft commodities.
"There are more people in Switzerland who drink coffee than in China ... If there was a shift in cultural emphasis towards Western types of drinks, just imagine the effect it would have on coffee prices," he said. "During the course of next year we will look closely at soft commodities basket," he added.