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JPMorgan sees multi-year cycle for commodities

LONDON - Financial distress has slashed the value of many natural resource stocks, but a lot of the underlying assets remain solid and the outlook for commodities is positive, a fund manager said on Wednesday.

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Ian Henderson, who manages around $5 billion at JPMorgan's Global Natural Resources Fund, said he favours long-term commodity investments but investors have to be selective.

'I strongly believe this is a multi-year cycle ... but you have to be a lot more selective and distinguish between commodities,' Henderson told Reuters in an interview.

Since the credit crunch in July last year, equities have been battered with mining stocks losing more than 15 percent of value, making it difficult for miners to raise cash.

Also, some commodities such as nickel, zinc and platinum have halved in value since their peaks with speculation exacerbating price volatility.

'Some people have been hit very badly financially ... so there has been forced liquidation,' Henderson said, adding that this could continue to have an 'adverse impact on London Metal Exchange traded metals'.

The fund, with half of its investments in smaller firms with a market capitalisation of below $2 billion, has lost nearly 30 percent in value since its peak in February this year.

'Bombed-out'

'If people were to go and buy a basket of these completely bombed-out companies, although they might not have picked the bottom, the upside potential is tremendous,' Henderson said.

But value depends on the underlying commodities.

'Even if prices stabilise at current levels earnings are going to be negligible for people producing zinc and there will be huge downgrades for nickel producers too,' he said.

In contrast, low stock levels would persistently support copper producers with the metal up 13 percent this year.

'The energy market is still very tight, including coal, and uranium will become tight as time goes by,' Henderson said.

Iron ore, oil and gas, platinum and gold would also see prices rising on strong demand from emerging markets.

'We are long-term believers in China's infrastructure.'

In February this year, European investors turned particularly risk averse liquidating their holdings, but this had not changed the structure of the portfolio, Henderson said.

'We haven't really seen huge outflows and in fact, over the past week our flows have been pretty positive,' he said, referring to some investors starting to take on risk again.

'People will always try to pick the bottom of the market ... but it (the selling) will probably go on for a bit longer.'

The fund held 25.2 percent in base metals and diversified mining companies, 29 percent was allocated to precious metals firms and energy attracted 33.5 percent at the end of July.