SHANGHAI – Forget Brexit, go for raw materials. Citigroup Inc. says that it’s bullish on the outlook for commodities in 2017 as the impact of the UK’s vote to quit the European Union will fade, global growth chugs along and investors will plow more cash into funds.

“Citi is especially bullish commodities for 2017,” analysts led by Ed Morse wrote in an note received on Monday, two months after the New York-based bank said that raw materials’ markets had turned the corner. “Citi economists see the damage to global growth from Brexit to be limited in extent and duration in 2016, while stronger growth from China and the US should lift global growth for the rest of the year.”

Returns from commodities trounced those from other assets in the first half as the oil market showed signs of rebalancing, spurring a rally. The half ended with the UK’s vote to quit the EU, boosting concern about the outlook for growth. Global raw material demand still continues to grow, helped by the US and China, while supply cuts are showing in petroleum and North American natural gas, some base metals and farm products, Citigroup said.

‘More Sustainable’

“Unlike last year, when commodity markets rallied through the second quarter only to fall sharply come the third as oversupply persisted, this rally looks more sustainable as physical markets have tightened considerably,” the analysts wrote. “Global demand continues to grow at a moderate rate while the pullback in capital spending is reducing not just supply growth but total supplies across nearly all extractive industries.”

The Bloomberg Commodities Index, measuring returns on 22 raw materials, surged 13% in the first half after falling to the lowest in at least 25 years in January. That compared with the 3.8% loss in the dollar, while a gauge of global stocks was little changed in the six months.

Citigroup said that while the bear market in oil is now over, a bull market hasn’t yet begun. Brent crude surged 25% in the second quarter after a 6.2% rally in the first three months as a global glut showed signs of easing and US supply fell.

“The oil market is treading water for now, but the oil price overshot to the downside earlier this year and this is clearly setting the stage for a bullish end to the decade,” Citi said.