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Stocks

Betting begins on a commodities rebound

TOKYO -- While some investors are perplexed that natural resources are not moving in tandem with rising stock prices in Japan, others see an opportunity to pick up commodity-related shares while they are low.

     The Nikkei Stock Average regained the upper 19,000-point level two weeks ago, yet the benchmark remains shy of 20,000 as investors are disturbed by falling commodities prices.

     The index rose 45 points Tuesday to stand at 19,924, but energy and resources stocks were lackluster again. Sumitomo Metal Mining slipped 3% at one point after three-month copper ingot futures slid to the lowest in over six years in London the previous day. The Japanese company operates copper mines in South America and elsewhere.

Falling indicators

The Thomson Reuters/CoreCommodity CRB Index, which tracks global natural resources prices, hovers at its lowest in a decade these days. Industry players are scaling back supply, with Glencore of Switzerland announcing a cut in copper output.

     But "production isn't being reduced enough, and prices are far from stabilizing," said Tomomichi Akuta at Mitsubishi UFJ Research and Consulting.

     The Baltic Dry Index, a measure of shipping rates for vessels transporting iron ore, coal and other resources, sank to an all-time low Friday.

     "Now that China no longer has a huge appetite, the supply-demand balance for commodities had been disrupted," said Junichiro Ikeda, president and CEO at Mitsui O.S.K. Lines.

     Shares of maritime shippers are slumping in Japan, with their Nikkei subindex down 13% from the start of the year -- the steepest decline of the 36 subindexes, along with that for shipbuilders.

Some expect rebound

The Nikkei average is testing 20,000 again on buying of futures by overseas hedge funds, yet commodities prices keep declining, suggesting a weakening global economy. This mismatch discourages investors from buying stocks aggressively.

     But some investors, especially those with high risk tolerance in the U.S., see an opportunity in plummeting commodities prices. U.S. exchange-traded funds targeting energy businesses attracted $400 million in October, a tenfold jump on the month, Nomura Securities said. Some ETF buyers apparently anticipate a recovery in resources stocks in the long term.

     Natural resources stocks have hit bottom, said Fidelity International's Sean Molony, who upgraded his recommendation for energy businesses from "hold" to "buy" this month.

     Steen Jakobsen at Saxo Bank also says the tide is turning. The anticipated hike in U.S. interest rates by year-end demonstrates a strong American economy, and Europe is increasing its easing to shore up the economy. The risk of the global economy weakening is slim, and stocks and the currencies of emerging markets that have become undervalued amid falling commodities prices look attractive, he said.

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