2022 stock market outlook: Leverage from commodity prices skyrocket

OPEC has maintained its cautious approach to increasing output, resulting in higher energy prices

Currently, the Bloomberg Commodity Spot Price Index has surpassed the highest level in 10 years. The price hikes in almost all commodities come from energy, metals, and agriculture, caused by a combination of demand and supply factors.

Commodity prices have accelerated following the massive stimulus measures worldwide to support the global economic recovery. In particular, China’s success in controlling the pandemic allowed its economy to continue to grow, boosting demand for commodities, particularly industrial metals and agriculture. According to the IMF, the global economy will grow at a 4.9% annual rate in 2022, after increasing at a 5.9% annual rate in 2021.

On the other hand, many commodity-producing and exporting economies were hit hard by the pandemic while the cost of shipping was greatly rising, which caused the freeze in supply. This situation was exacerbated by a series of adverse weather events threatening the crop in key growing nations like Brazil and France, China’s emissions crackdown that’s cutting metal output, or scant European gas reserves. Meanwhile, in the oil market, OPEC has maintained its cautious approach to increasing output, resulting in higher energy prices, which have also impacted the production of other commodities.

The prices of all commodities have skyrocketed in 2021, and in VNDirect’s view, different types of commodities will have different prospects in the coming periods as following:

First, it considered energy prices would remain high in the next couple of quarters as it needed time to solve problems involving a lack of new investments, putting an upside pressure on other commodity prices.

Second, for industrial metals, it expects metal prices to maintain their high level until 1Q22F as energy and shipping shortages take time to normalize, then gradually decline to their long-term average through end2022 when supply disruptions are addressed.

Third, for agriculture, prices are also expected to decline modestly in 2022 as supply conditions improve. However, VNDirect sees upside risks to prices coming from high input prices (especially fertilizers) in 1H22F, potentially pushing food price inflation up.

This stock company believes companies with high exposure to commodity prices, especially oil and gas and commodity-exporters, will gain benefits from this trend. Therefore, Quang Ngai Sugar Joint Stock Company (QNS), PetroVietnam Drilling & Well Services Corporation (PVD), PetroVietnam Gas Joint Stock Corporation (GAS), Century Synthetic Fiber Corporation (STK), and Duc Giang Chemicals Group JSC (DGC) could all post strong performances.