ANALYSIS-Commodities correction to draw in fresh investors

By Pratima Desai

LONDON, June 6 (Reuters) - Oil and metals markets are undergoing a correction that fund managers say could take some prices down by 10-20 percent, but the long-term uptrend seems intact and a fall is only likely to draw in more investors.

Many of the investors who missed out on the commodities rally early this year are preparing to enter those markets for the first time or add to their holdings.

The notable exception is grains and other agricultural products, where relatively illiquid markets, previously populated by consumers and producers, have made it difficult for funds and to invest large amounts.

Overall, however, across the commodities complex, prices could fall by 10 to 20 percent over coming weeks and months as short-term players take profits or cut their losses.

"In the last stages of an upswing you get a lot of short-term investors and traders coming into the market, who don't care about fundamentals," said Ashok Shah, chief investment officer at London & Capital.

"The underlying fundamentals will reassert themselves."

One of the tenets underlying the bull run of the last few years has been demand growth from emerging countries such as China and India, with their growing middle classes and massive amounts of money allocated to infrastructure.

Unless the United States falls into deep recession, which would damage export-reliant economies, commodity demand from these countries is something investors cannot afford to ignore.