COMMODITIES: Credit Suiise First Boston Bearish On Commodities; Underweight Resource Sector
Credit Suisse First Boston is bearish on commodities due to excess supply (from higher capital expenditures), macro slowdown (risk in China), and commodity prices that are still high relative to their long run averages. Bottom line, CFSB believes that equities are a better inflation hedge than commodities.
Within this equity framework, the firm is underweight the resource sectors, which have poor capital discipline, low FCF (free cash flow) yields, and spot price which are below consensus. In particular, mining is the most sensitive to ISM (Institute for Supply Management) and China infrastructure expenditures, yet this is not reflected in the PE ratios. CSFB is also tweaking its relative positioning in the resources sector, and prefers energy over mining given that oil prices are more resilient than industrial commodity prices.