Concerns about China have shaken global markets and oil has been suffering, but one legendary investor is still bullish on both China and commodities.
The Shanghai Composite index (000001.SS) is off by more than one-third over the past three months. Other markets also have slipped, with U.S. stocks dipping into correction territory and equities from Japan to Europe also stumbling.
Despite the declines, Jim Rogers, founder of Rogers Holdings, remains optimistic. “The Chinese stock market has been the strongest stock market in the world in the last 12 months – much, much, much stronger than the U.S. stock market,” he said. “Yes, there are going to be problems in China and yes, we should all be worried. But there are going to be problems in a lot of places."
Although selling off from its June record highs, the Shanghai Composite index remains up some 36% from a year ago. That’s in stark contrast to the S&P 500’s (^GSPC) 1% reduction or the German DAX’s (^GDAXI) 5% positive return. China’s benchmark index also trounced the Nikkei’s (^N225) relatively modest 13% rally in the past 12 months, gains fueled in part by stimulus from the Bank of Japan.
Rogers, who cofounded the Quantum Group of Funds with George Soros in the 1970s, even sees a few bright spots in China’s economy. “If you’re in pollution cleanup, oh my gosh, you’re making so much money you can’t count it because there are a lot of problems that need to be fixed in China,” he said.
But it’s in the commodities markets where some of the hardest blows have landed recently. China’s woes are being blamed for crude’s (CLV15.NYM) spill to the mid-$40 per barrel price level from around $60 three months ago. Rogers, though, sees other factors at work in driving down oil prices, namely the extension of negotiations between Iran, the U.S., and five other countries in the summer of 2014.
“They were failing so America went to Saudi Arabia and said, ‘Dump your oil. We’ve got to put pressure on these guys and the Russians,’” he said. “We’re making a bottom which was engineered by State Department people in Washington putting pressure on the Iranians and Russians.”
Rogers expects the fundamentals to ultimately drive oil prices back up. And he remains upbeat about other commodities for the long term even as the benchmark he created, the Rogers International Commodity Index, is down 12% in the last 90 days and nearly 60% from its 2008 all-time highs.
“I wouldn’t buy iron ore with your money going forward because there is an excess capacity [but] I’m optimistic about agriculture” said Rogers, who sits on the board of PhosAgro (PHOR.ME), a Russian fertilizer company that has seen three-month returns of 41% partially offset by ruble’s (RUBUSD=X)18% decline in value. “But I wouldn’t buy gold (GCZ15.CMX) and silver (SIZ15.CMX) yet. If gold goes under $1,000, I hope I’m smart enough to buy a lot gold because in the end, gold is going to turn into a bubble.”
Surprisingly, Rogers, a strong critic of the Federal Reserve, says his largest currency holding is in greenbacks.
“We’re going to have more problems and in turmoil, people look for a safe haven.” he said, explaining his U.S. dollar position. “It’s not a safe haven but everybody thinks it is and it has been…. It will turn into a bubble at which point I hope I’m smart enough to sell it."
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