The CPO prices shot above the RM7,000 again today and this is the second time this year that the price had gone above this level.
I believe that the CPO trade is a crowded one right now with market participants highly driven by the inflation story globally. The prices of commodities have been rallying since the turn of the year.
However, there are signs of a growing inventory buildup in China and if the inflation really turns out bad and eventually, FED to hike interest rates aggressively, there is a possibility that the demand will come off.
In view of the risk-reward and the various scenarios analysis, (1) easing demand as a result of a global economic slowdown; (2) ceasing of the Russian-Ukraine conflict; (3) Inventory buildup, I would be taking bets off the table on commodity plays, especially CPO as the prices have continued to go up even though there is a possibility of a global slowdown in economy.
Avoid CPO play stocks like Wilmar, Kencana, Golden Agri, First Resources and Bumitama. Investors should look to selling these stocks if they are holding on to them. I am expecting oil to retreat in the coming months to trade between US$90-US$100 even with the war in Eastern Europe ongoing as demand may eventually ease with the possibility of a US recession.
Again, these are my opinions and do consult your investment advisors. Read disclaimer below.