Global Equity Strategist Commodity Risk - Citigroup

 Big Oil — Oil prices have rallied by more than 40% over the last 12 months.
Investors are clearly worried. Previous global earnings downturns have been
preceded by big increases in oil.
 Earnings Risk — It is not only crude prices rising. Metals prices are up 30% in the
last year, food prices have increased more than 40%. Compounding investor
worries further is that analysts’ earnings revisions have turned negative.
 Better Predictors — Those worried about a serious earnings downturn should
watch out for unsustainably high RoEs, tight labour markets and high real interest
rates. None of these are apparent now. By themselves, a spike in commodity
prices is unlikely to drive down global corporate profits.
 Regions and Sectors — Further increases in commodity prices should be
positive for Emerging Markets, especially the large oil producers like Russia. Other
cyclical sectors, in addition to the commodity producers, should also perform well.
Consumer-focused companies may struggle.