Ending the year on a dismal note

[SINGAPORE] The resurgence of fundamental supply and demand as a driver of commodity prices was supposed to be a life buoy for the struggling asset class this year. But as the global economy turned on its head, it dragged the asset class down further.

After five years of commodity prices being driven mainly by macroeconomic factors such as quantitative easing (QE), industry observers noticed that correlations between commodities and equities started falling this year.

According to research by Societe Generale, supply and demand fundamentals accounted for about 80 per cent of commodity price movements on average before the collapse of Lehman Brothers in 2008. In the aftermath of the financial crisis, however, macroeconomic factors gained an upper hand, accounting for about 60 per cent of price movements, and fundamentals only 30-40 per cent.