InvestmentEurope has asked Arnaud du Plessis (left) and Stéphane Soussan (right), respectively senior portfolio manager Natural Resources & Gold and senior portfolio manager Natural Resources, Energy, Agriculture at CPR Asset Management, their current views on the commodities sector.
How have resources stocks been performing so far this year? What is driving the current outperformance of commodities?
Global resources stocks have performed well so far this year with a special mention for gold equities, rocketing by more than 70% ($) in average YTD, despite the significant consolidation we have observed since summer. Energy and other materials have not been too bad with a 20% ($) positive performance. Natural resources environment has significantly improved in recent months, resulting from the significant upward revisions of the consensus. The valuation remains reasonable at this point. Negative interest rate generalisation has been the main trigger for gold. The Brexit had little effect for the moment, but should not impact significantly the theme, very global structurally. Concerns around China have been dispelled, and contributed to the trend, especially for industrial metals. The surprise OPEC in Algiers decision offers more positive prospects for the oil market and has established a floor for prices.
Which sectors are offering the best value?
In absolute terms, global resources valuation is still high for current year, and despite positive earnings momentum, but will normalise very quickly over the next quarters if commodities prices remain at current level. In this context, energy and mining could offer the best value on a 2017 perspective.
Do you expect the current strong performance to continue?
Yes, we do. Current strong performance we have observed year to date represent only a partial mirror to what we observed during the past five years. Global resources earning momentum has turned positively since last February and the potential is still significant, relative to global equities. It is also important to have in mind that a large proportion of global fund managers have remained largely underweighted in global resources. With the year-end coming, a lot of them could be in the situation to cover this “short” position.
Is the commodities story rather an emerging market/China than a global story?
Until 2010/2011, commodities were especially a China story, positively supported by the “Super Cycle”. Then, we observed a significant slowdown in this area and commodities prices collapsed. The story has been different for one/two years. Occidental economy has started to take the baton, and especially US which economy has begun to recover. Important to note that China economy has stabilised too, but so far we have not observed a real import resurgence.