There is no super-cycle in commodities, says Max Life CIO Mihir Vora

There is no super-cycle in commodities, says Max Life CIO Mihir Vora

MUMBAI: It is not often that the biggest asset managers on Dalal Street stand in contrast to what their peers at Wall Street proclaim. Max Life Insurance’s Chief Investment Officer and Senior Director Mihir Vora might be an exception.

Vora, who manages over $12 billion in assets for Max Life, can be considered a fund managers’ fund manager. His observations related to the financial markets on Twitter often draw praise from fellow veterans in the industry.

“It is not a commodity super-cycle,” Vora told ETMarkets.com in an interview. His view stood against the declarations made by two of the biggest voices on Wall Street – Goldman Sachs and JP Morgan & Chase.

In the early days of 2021, both Goldman Sachs and JP Morgan said global commodities are entering a new super-cycle. The previous super-cycle lasted seven years from 2004 to 2011.

By the time Goldman Sachs and JP Morgan made their proclamations, global commodities were already rallying like they hadn’t in many years. Prices of metals from iron ore to copper hit their record highs. Soft commodities like wheat and corn were registering lifetime highs on a daily basis at one point during the year. The boom was fuelled by hope of a soaring global economy once vaccines put the Covid-19 pandemic to history books.

Global commodity prices have, however, tailed off in recent weeks, as more evidence gathered that the global economy would take more time than it was thought earlier to leave behind the scourge of the pandemic.

In Vora’s views, investors need to look at the commodities market case by case. “If you are talking about, say, lithium, there might be a super-cycle there, because you are talking about electrification of the whole force of vehicles in the world,” Vora said. For large commodities like steel or aluminium, Vora said production can be ramped up “because it is not like there is a shortage of ore.”

That said, Vora is also not a fan of the theory that the current bull market in India is similar to the Golden Era of 2003-07. The theory came from the Indian arm of another Wall Street giant, Morgan Stanley, and was seconded by many veterans of India’s asset management industry.

“The story then was emerging markets, China growth and Indian capex — not only in manufacturing but also in real estate. This time around, it is driven by the developed markets. Basically, the huge fiscal and monetary stimulus given by the US and Europe is driving the current rally. I think it is a bit different from last time,” Vora said.

The CIO, whose pedigree includes a stint at HSBC and Abu Dhabi Investment Authority, is not bothered by ongoing concerns of froth in the broader equity market. For him, the systemic risks are much lower than in the past, because of low levels of leverage among retail investors and high networth individuals.

“Indian markets have withstood last year’s shock, and the 2008 shock when the market had gone down 50-60 per cent and there were stray cases of defaults etc. But the system has held up quite well. Our day-to-day margining system, initial margin and mark-to-market systems are working pretty fine,” Vora said.

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