Markets have overreacted to recent concerns on oversupply in soft commodities, and the fundamentals do not support the recent sell-off, Sudakshina Unnikrishnan, analyst at Barclays Capital, told CNBC on Tuesday.
Macroeconomic concerns, such as the sovereign debt concerns in Europe and the US, have caused investors to pull back from higher risk assets, hitting soft commodities — which include agricultural crops such as coffee, cocoa and sugar — according to Unnikrishnan.
“There has been pretty widespread and broad-based risk reduction across the board and that’s hit everything across the commodities and equity space,” she said.
This macroeconomic uncertainty is likely to continue, and could weigh on commodities markets, she added.
“I think you’re likely to see continued concerns about the broader macroeconomic recovery, about sovereign debt risk concerns,” Unnikrishnan said, “I think this is very likely to set the tone for soft commodities going forward as well, despite fairly robust fundamentals.”
“If you look at the fundamentals, for a lot of these markets, not that much has really changed,” Unnikrishnan said, “for the grains markets, we had a pretty bearish report last week but apart from that, if you look at the… statistics, we haven’t really seen any big decline in homes’ demand, supply concerns are still there.”
“You have seen increased plantings, you have seen ending stocks being higher than expected in the US,” Unnikrishnan added, “is it really enough to be able to form such a massive sell-off? I don’t really think so. I think it is a bit of an overreaction there.”