Commodity Rout Hasn't Ended, Wait Before Buying: Analysts
Commodity prices may have recovered slightly from last week's sharp selloff but the downtrend is likely to stay in place for the next few months, warned analysts.
Silver and oil logged their worst weekly decline in dollar terms last week, with oil dropping $16 and silver plunging $9.22.
"Momentum is going to be down for the next couple of months … if you look at the technicals, I think there's probably another 10 or 15 percent down over the next couple of months, in the complex generally," Peter Hickson, global commodities & basic materials strategist at UBS told CNBC.
Hickson said August and September might be a good time to re-enter the commodities space. It's a view shares by others such as Gavin Wendt, senior resources analyst at Mine Life.
"I think it's (the rebound) going to take a couple of months, bearing in mind the northern hemisphere is effectively on holiday for the next couple of months. So I think over the next couple of months will be steady as she goes and we'll start to see some significant recoveries probably in about September," explained Wendt.
The best areas to get into within the commodities space are bulk materials like coal and iron ore, according to UBS' Hickson.
"Coal and iron ore still remain relatively robust, particularly iron ore. And one of our views is that China manufacturing may be slowing but construction still looks pretty good," he said. (Watch video here.)
Wendt added that heavyweights like BHP Billiton and Rio Tinto look like outstanding buys. He cited Rio's attractive valuations; the stock currently trades at a PE of about 12x earnings over the next 12 months. (Watch video here.)
James Chirnside, CIO at Asia Pacific Asset Management, however, advised investors to wait before re-entering BHP and Rio Tinto as he expects both stocks to decline further.
"An interesting point to make here is that stock prices often run ahead of commodities themselves and on the downside, stock prices will often lose more than the underlying commodities that they are associated with," he noted. (Watch video here.)