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Asia-Pacific emerging markets see flight of capital on inflation risk

(Reuters, March 18) – US crude oil prices will hit $150 a barrel by the end of 2011 due mainly to political instability in North Africa and the Middle East while inflation will boost gold and other commodities, a US fund manager said.

Guild Investment Management has shifted its portfolio to energy, precious metals and currencies, having sold grains, Monty Guild, the founder and chief executive of the fund said.

"We shifted our portfolio almost entirely to energy and precious metals. And grains, about two-to-three weeks ago, we sold grains," Guild told Reuters in a telephone interview.

"The price of oil, we believe, will hit $150 a barrel by the end of this year."

Guild was referring to US crude futures. North Sea Brent crude futures would rise by $10 above US crude, he said. By 1400 GMT, US crude was trading about $100.23 a barrel and Brent was at $113.43.

Brent has risen by more than 15 per cent this year, outpacing US light crude, reflecting a spate of civil unrest in Tunisia, Egypt, Libya and the Middle East Gulf.

Guild believes the social unrest in the oil-producing regions will continue for a long period of time.

The fund also exited Asia-Pacific emerging markets such as Malaysia, Indonesia, Singapore, Thailand, China and India due to concerns about rising inflation, which he expects will result in interest rate hikes.

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Los Angeles, California-based Guild Investment was set up in 1971 and has about $150 million of assets under management for selected clients.

Its equity holdings in the energy sector are mainly focused on oil and oil services firms, with a particular focus in Canadian firms like Pacific Rubiales Energy and Legacy Oil and Gas among others, where he sees high yield and dividends. The fund, which expects gold to remain strong and silver to begin underperforming, holds precious metals in many areas of the world, mostly through exchange-traded funds (ETFs).

"Gold has been strong for about 10 years, outperforming most of other commodities including silver. So this year ... we shifted more into silver as well as gold," Guild said. "We now think silver, having outperformed gold over last 6-8 months, may be ready to start underperforming gold again."

As developed economies struggle to recover, loose monetary policies, often referred to as quantitative easing (QE), are likely to continue.

"I believe QE, or money printing, will become a way of life for all of the industrialised world. That will create lower currencies and higher inflation and higher commodity prices, Guild said.