August 2020

Investment Team Perspectives

Are we entering the next commodities supercycle?Near-term,

Near-term, COVID-19 has delivered a deflationary shock, but inflation expectations may well start to edge higher based on the enormous global stimulus in response to the demand shock. Longer-term, however, the reaction to the virus may well be inflationary.

Rising money supply, expansionary fiscal policy, de-globalisation/re-shoring, a weaker US dollar and waning technology disruption all suggest we should expect higher inflation. In addition, the most politically, socially and economically expedient way to deal with enormous debt is to inflate it away.

In the mining sector, we don’t think that current valuations reflect the sector’s high correlation with inflation expectations, its real asset characteristics or its exposure to Chinese demand, infrastructure and construction. In addition, rather than being disrupted by it, mining is actually a beneficiary of the ongoing carbon transition given the demand it places on raw materials for components in solar panels, wind turbines, electric vehicles and batteries to name just a few.

Where are we seeing opportunities?

Our focus remains on quality businesses with significant natural resource advantages. We aim to find companies with 'outlier projects' in terms of their grade and size or location advantage across a broad range of commodities and countries.

Underpinning our strategy are the long-term trends of increasing population, prosperity and urbanisation, particularly among developing economies, which is leading to rising global consumption growth rates of natural resources.

In the current environment, as we respond to the short-term market dynamics brought on by the COVID-19 crisis, as well as position for an upswing in the commodities supercycle, the Janus Henderson Global Natural Resources Strategy is well diversified to seek value across a range of opportunities across the three global natural resources subsectors. These include opportunities in gold, copper, diversified mining, US steel and aggregates, industrial gases, wind power equipment and electricity generation, offshore engineering services, oil and gas, uranium, agricultural equipment and products, healthy food, forestry and paper packaging.

https://www.janushenderson.com/en-au/investor/article/are-we-entering-the-next-commodities-supercycle/