One of Goldman Sachs top trades for 2014: Go short copper
Goldman Sachs has unveiled its top six trade recommendations for 2014 in a series of research notes to the investment bank's clients.
Business Insider reports among Goldman Sachs' top trades for next year is the shorting of the Canadian loonie and the Australian dollar, two currencies heavily dependent on the mining and natural resource sectors.
But what stands out among the top recommendations – most of which are pair trades, technical in nature and not aimed at your average retail investor – is the bank's copper and China play:
Go Long Chinese Stocks, Short Copper
Originally introduced: December 2
Target return: 25%
The trade: Buy the HSCEI Index and sell Copper Dec 14 LME futures.
The logic: "This long equity/short commodity trade is a way of isolating exposure to China equity risk via a long HSCEI position, which we think is underpriced by the market given our views of stable growth and ongoing rebalancing there, while the copper short hedges out exposure to China’s economic growth, which we think will be stable but not stellar," says Goldman.
"Short copper, which is typically highly correlated to China growth outcomes and China equities too, has the added advantage of being an asset that we think will likely be facing headwinds of its own over the course of the year, with the short position potentially adding to the positions' expected returns, and not just a hedge against unanticipated outcomes."
Copper futures contracts for delivery in March 2014 was last trading at $3.22 a pound on the Comex division of the New York Mercantile Exchange and LME three-month contracts at $7,070 a tonne in London.
The red metal is down 9.7% this year after recovering from near three-year lows of $3.04 a pound struck at the end of June. The copper price peaked above $4.50 a pound in February 2011.
Image of The Copper Bull sculpture in Beijing by chinahbzyg