Threadneedle's Donora bullish on commodities

Donora says Chinese demand for commodities driven by the expected revaluation of their currency and ongoing infrastructure projects will continue to support prices next year.

In his outlook for 2010, Donora says if the renminbi is to be revalued, China will look to diversify foreign currency reserves away from the US dollar.

"China is currently estimated to be holding $2.2trn in foreign reserves and it will not wish to see these reserves devalued," says Donora.

"At the same time, the ongoing modernisation of the country, with its attendant long-term infrastructure projects, is creating enormous demand for a wide range of raw materials. It makes sense for China to spend its dollars on these hard assets while the dollar still has reserve currency status."

"As quantitative easing comes to an end, the medium-term picture is less clear and depends largely on how developed governments navigate the end-game of their stimulative policies," he says.

Donora sets out three possible scenarios: stimulus is withdrawn and economies suffer a long period of sub-trend growth; further quantitative easing causing continued depreciation of domestic currencies or the current stimulus packages create a sustainable recovery.

Categories: Commodities

Tags: Threadneedle

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