PETALING JAYA: Investors should go long on stocks that are linked to commodities such as crude oil, as geopolitical tensions continue to see-saw, keeping prices volatile but elevated.
MBSB Research expected crude oil and other commodity prices to climb higher in the near-term, with the benchmark Brent crude oil potentially re-testing its year high level of US$120 per barrel.
As such, it recommended investors take “buy” positions in crude oil and other commodity-related stocks “duly supported by fundamental upside”.
This was amid US President Donald Trump’s assertion the war is nearing its end, even as he warned of a vicious closing act that would be delivered over the next two to three weeks, to dismantle Iran’s remaining infrastructure.
Brent crude oil is trading at US$108.17 per barrel at press time.
Such commodity-linked exposures include oil and gas (O&G), palm oil as well as aluminium-related players, with analysts urging investors to stay selective as gains remained largely driven by oil price shocks rather than a broad-based sector re-rating.
“The upward momentum seen across the O&G and palm oil related stocks have been entirely driven by the rally in the energy complex.
“This is not a risk-off rotation into commodities, but is mainly driven by disruptions in global oil supply. Much of this has already been priced in,” Tradeview Capital fund manager Neoh Jia Man told StarBiz.
That said, Neoh said investors could find better risk-reward opportunities in palm oil and aluminium-related stocks.
“We opine there is further upside and room to run for palm oil and aluminium players. In comparison, the risk-reward for O&G is only fair, as it could pull back quickly if the Strait of Hormuz reopens,” he said.
Meanwhile, the situation for gold differed as prices have pulled back by about 15% in March despite heightened uncertainty. This is partly due to profit-taking by investors who had already built positions, as well as rising inflation expectations that could delay US rate cuts, increasing the opportunity cost for gold.
Neoh said palm oil is supported by the upcoming implementation of Indonesia’s B50 biodiesel mandate in the second half of the year. He added that exporting countries may introduce export restrictions on crude palm oil (CPO) in response to rising prices, which could support CPO prices.
“While prices have risen from around RM4,000 to more than RM4,800 per tonne since the war began, CPO prices remained below previous peaks of over RM7,000 per tonne seen in 2022. While we do not expect CPO prices to reach that point, current levels suggest there is still room for further upside,” he said.
CPO benchmark contract has risen by nearly 20% since the Middle East conflict erupted to RM4,810 from RM4,052.5 in late February.
On concerns over fertiliser shortages that could weigh on palm oil in the form of higher input costs, Neoh said local planters are better positioned, having already secured their fertiliser supply.
“Competing vegetable oils especially soybean oil are likely to be more affected due to the increase in fertiliser costs, which could allow palm oil to increase its market share,” he said.
Companies like SD Guthrie Bhd
for instance have locked in fertiliser cost prices and supply for 2026.
Neoh said structural supply constraints – particularly output curbs from China – as well as disruptions to exports from the Middle East are expected to support aluminium prices.
“Aluminium can be viewed as a form of stored energy, as energy costs make up a significant portion of production. This is why Indonesia has always been a major supplier of aluminium to the world because it has cheap energy from O&G.
“Currently, with supply disruptions due to the war, producers with relatively stable energy costs like Press Metal Aluminium Holdings Bhd are likely to benefit, as rising aluminium prices would boost margins without a corresponding increase in production costs,” he said.
Berjaya Research head of research Kenneth Leong said investors should increase exposure to commodity-linked stocks like O&G and plantation, but only to a certain extent.
“While both O&G and plantation stocks have been the key winners in recent weeks, valuations remain fairly attractive and have yet to catch up with fundamentals.
“Upstream O&G players are the major beneficiary of higher crude prices, which could support earnings resiliency in the near-term,” he said, adding that a modest re-rating in terms of earnings upgrades is likely to factor in the elevated oil prices.
For plantation stocks, Leong said players with strong exposure to upstream activities are the biggest winners.
In contrast, integrated planters could face challenges from higher feedstock costs, he added.
In a recent report, UOB Kay Hian Research said Indonesia’s abrupt pivot to fast track its B50 biodiesel mandate – announced by its government to commence on July 1, following the recent surge in global diesel prices – “represents a significant near-term catalyst for CPO demand”.
It noted that the move is expected to absorb an additional three million to four million tonnes of CPO feedstock per year going forward.
The research house said other catalysts for CPO include the expansion of US biofuel mandates, which is expected to boost soyoil. With current soyoil prices having rallied sharply in the policy development’s lead-up, the move is expected to provide strong price support for CPO over the next two years. The broader market, however, remained cautious.
The market closed lower at 1,680.83 points yesterday, with the FBM KLCI slipping into negative territory as investors turned cautious amid escalating Middle East tensions.
