Plantation stocks on the local bourse took a nosedive recently as crude palm oil fell below RM2,400 per tonne amidst falling crude oil prices.
Heading the top losers’ list was Kuala Lumpur Kepong Bhd, which fell 60 sen to RM10.50. Kulim (M) Bhd lost 25 sen to RM7.05 and Kulim-WB dropped 19 sen to RM4.96.
Heavyweight IOI Corp Bhd was down six sen at RM4.80 and Sime Darby Bhd declined 20 sen to RM6.25.
Plantation stocks have been a bit of a golden goose that benefitted tremendously from the spike in oil prices. As an alternative energy source, plantation stocks suddenly jumped and many who owned plantations and stocks in this commodity sector made a killing from them.
So, are they still a good buy despite the beating they took recently?
As an investor, you should have a good idea of your investment timeline and profile. CPO future prices have dropped over 50% from its record price of under RM4,500 per tonne in March to its current trading price of RM2,378 per tonne.
However, if you have a long term investment plan, now may still be a good time to take advantage of the lower prices as commodities generally move in a cyclical fashion. Since oil palm prices are positively correlated to crude oil prices as an alternative energy source, it will likely go up in the future as developing giants such as China and India start to turn to alternative energy to fuel their insatiable energy demands.
“Although CPO price is on a cyclical downtrend, we maintain that investors with a long-term investment horizon of three to five years should accumulate on price weakness as we believe the secular uptrend remains intact,” OSK Research said.
In fact, the recent announcement by OPEC to lower overall output has put another squeeze on the crude oil market and prices are expected to rise again.
Nevertheless, do your own research and understand your investment goals before committing to an investment in commodities. If you choose to buy into them, you might have to be prepared to ride out the volatility before you start to see your gains.