We are entering an uncertain but interesting period of history with unprecedented changes impacting markets and creating a cloud of uncertainty. Voter dissatisfaction has heralded the beginning of the Trump Presidency and is reminiscent of last year’s Brexit vote along with other political signs around the world.
Investors need to look above the hype and identify the opportunities that may emerge, particularly from the US’s new stance on about everything with President Trump. Indeed Breakaway Research has analysed some of the rhetoric and actions to-date and can interpret some positive developments which bode well for commodities and mining and energy companies in general.
At a top level, we have a number of contrasting themes:
- The US seeking to protect its manufacturing industry through import tariffs.
- A US infrastructure spend which seeks to boost US growth and employment.
- A US President providing dissention against historical US alliances, particularly in the southwest Pacific.
What does this mean? Indeed Breakaway Research is quite excited at the investing prospects that this may bring.
For a start, the US is setting itself up for a combination of growth but protectionism which drives both higher commodity demand but also the prospects of a weaker US dollar. These elements are very positive to commodity prices, particularly precious and base metals prices.
On the other hand, we have China. President Trump’s disdain for China leaves President Xi Jinping in an uncertain position. The Chinese Government voices its displeasure at the US stance on trade and other issues but also recognise that President Trump is allowing China to reposition itself on the world stage – again particularly in Asia and the Southwest Pacific.
President Xi Jinping can hardly let Chinese growth slide when China has a chance to redefine the world stage as the US dissolves previously strongly held alliances. Breakaway Research expects the Chinese to maintain or increase economic stimulation to its economy as well as continue to invest overseas. It is also likely to be more accommodating in some of its policies towards other countries as part of its new impetus to positioning itself at the expense of the US. The US President’s ‘friendliness’ towards Russia must also unnerve the Chinese President!
So what does this mean? Chinese growth will be at least maintained or may surprise on the upside – and provide additional support for commodity prices. It will also continue its spate of overseas investments while Chinese investors may be more inclined to focus on non-US destinations.
Hence Breakaway Research has a theme of ‘Unexpected Strength’ going forward and this could manifest itself in the following forms:
- With President Trump at the helm and the risk of inflationary and protectionist policies in the US, gold exposure is essential
- Base metals, and in particular, copper and zinc, offer significant upside as future demand will be higher than expected.
- Bulk commodities (iron ore and coal) may not weaken from the current higher than expected prices
Indeed commodities prices are receiving upgrades across the market with mine closures underpinning zinc and lead forecasts while recent supply to copper production.
Next week Breakaway Research will investigate the commodities that China dominates supply in the world as any risk to curtail supply could involve the revaluation of other western world mines. Meanwhile it is a combination of the above thematic and a variety company specific attributes such as project and management quality, likely investor base, growth options and balance sheet factors which have assisted Breakaway in forming its investment portfolios outlined in the Breakaway Mining Research Weekly Reports (available to subscribers).
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