With the recent geopolitical turmoil, spurred on by already hot-running inflation throughout global markets, commodities are now well within another supercycle.
The last we saw was roughly 10 to 15 years ago. That's when metals such as gold, iron ore and steel surged on the back of global demand and limited supply.
Fast forward to 2022, it's battery metals like lithium and copper. Whilst the macro-narrative is slightly different, the raw data is no different. Inflation is at 40-year highs, there is conflict between major global powers in Europe, we're overcoming a pandemic; alas, it's not just investors feeling the pain.
Nevertheless, commodities are front and centre once more considering the demand-supply dynamic that's vice-gripped essential energy and metals segments in 2022.
The Bloomberg Commodity Index (BCOM) tracks a global basket of commodities and reflects movements in 33 commodity futures contracts, per Bloomberg.
It has gained 4% overnight and is up more than 20% this year to date. That's as key weightings like oil, gold and natural gas each soar this year.
The largest weighting, the gold 100 oz future contract for 22 April settlement, comprises almost 14%, whereas oil collectively makes up over 16%, and natural gas another 8.5% (shown below).
With each of these segments – and just about every other commodity segment – entering the cycle, it's no wonder the index is one of the best-performing instruments out there in 2022.
Just take a look at Brent Crude Oil. No one thought it would reach US$100 per barrel again. Yet, here we are today with Brent above US$106.80.
What does this mean for ASX 200 shares?
Taking a high-level look, apparently not much. Whilst the commodities sector is roaring 20% higher in 2022, the S&P/ASX 200 Index (ASX: XJO) has plunged 5% into the red.
In fact, 151 out of the 200 companies are in the red today. Just 42 are posting a gain at the time of writing.
But digging a little further reveals some more accurate results.
Let's zoom out and see what shares are performing well over the last 12 months, seeing as the index itself is up just 5% in that time.
Of the top 10 performers in the past year, nine are resources, mining, minerals, energy or metals companies that each have some level of direct or indirect exposure to commodities.
Looking at today's session, of the top 10 performing stocks there is only one company without exposure to commodities. All the rest do, and are firmly in the green at the time of writing.
What about the top 20 performers today?
Funnily enough, 19 out of the 20 top-performing stocks on Wednesday have exposure to commodities. The results are very similar over a 12-month timeframe as well.
So, on re-evaluation – what does this mean for ASX 200 shares? Taking a more pragmatic look, it appears it means a lot for the ASX 200 basket.
With the major performers each being companies that have some exposure to commodities, it's abundantly clear what is driving returns in 2022.
Hence, the rally that commodities are staging in 2022 appears to be weighing in significantly on ASX 200 shares and keeping things afloat.
