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Finding Values in European Stocks

With a constraian judgement, Emerging European markets look attractively priced

Dan Kemp 05 September, 2016 | 17:12
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Commodity markets are often said to have a mind of their own, and the past year would appear to validate this point. The two most followed commodities, oil and gold, have both seen very high volatility numbers – although the performance has been in polar opposite directions.

Investing in gold remains one of the most controversial exposures for an investor, as it is arguably a greater fool investment that is said to be fuelled by three persuasive themes: fear of an economic crisis or inflation outbreak fuelling public demand, a change in the sovereign wealth funds asset composition, such as demand from China, to diversify their holdings; and negative bond yields losing their appeal as an effective hedge against equities. The popularity of gold is evident as it has increased 26.5% in the year to July. The question is whether gold is a valuable inflation-protector or an asset with no underlying value.

Oil is arguably more important from an economic perspective, as it is a key driver for inflation numbers. Most estimates indicate that a 10% rise of oil prices lifts inflation by 0.1% to 0.3%. Therefore, the tumultuous record of oil is putting the market in a spin, with the price of Brent Crude up 22.2% over six months but down 14.5% in July. WTI Crude has performed marginally better given it has greater United States exposure, although the numbers are similarly volatile.

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About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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