Generic Links

 

Welcome to RL360°'s

dedicated financial adviser website

For financial advisers only

Not to be distributed to, or relied on by, retail clients

Online Services Secure online services

Sign in | Register

Why is today a good entry point to invest in Global Resources?

For a long time, the main driver of the global resources sector was China and its seemingly insatiable demand for raw materials, to meet its massive industrial and urbanisation needs.

This led to the concept of the “super cycle”, i.e an environment where commodity prices would remain permanently on an upward trend, driven by lastingly buoyant Chinese demand. The super cycle thesis has lost its appeal today, after the financial crises of the past few years, when rising risk aversion led to a sharp correction in metal prices and more importantly in metals and mining equities. China today is on a structurally slower (and more sustainable) growth trend, with the authorities aiming at a gradual rebalancing of the economy from investments and exports to domestic consumption. This means a slower pace of growth in resources demand. However, slowing demand from China is being offset by rising demand in other emerging countries and, importantly, also in the US. Going forward, global resources demand will be more evenly balanced and less China dependent.


Investing in global resource equities means investing in a wide variety of segments in two different sectors, Oil and Gas and Basic Materials. This is a diversified and heterogeneous investment universe offering a multitude of attractive investment opportunities.


  • The Oil and Gas sector covers not only the integrated oil majors such as Exxon Mobil, BP and Total, but also oil services companies as well as more downstream segments such as refining and pipelines, enabling exposure to both Developed and Emerging market equities. Energy news flow is very rich and exciting currently and not a day passes without articles in the press confirming its strategic importance in today’s global economy. This is resulting in a sharp acceleration of mergers and acquisitions in the sector which together with solid earnings visibility for the next few years is a key contributor to value creation.
  • The Basic Materials sector is a very diversified investment universe with exposure to a very wide range of investment themes ranging from global Industrial Gas and Chemical manufacturing companies, Agro chemical and Fertilizers, to Mining groups in the Copper, Iron ore and Coal sectors., in addition to a small exposure to Gold Mining companies. The flexibility and diversity of the Basic Materials sector are particularly attractive.

In the past few years, a number of exciting new investment themes have emerged in the global resources space. The Oil & Gas sector has seen a radical transformation which is having a far reaching impact on global manufacturing. Rich in technological developments, multinational oil and gas majors are making impressive discoveries today which are changing the nature and more importantly the geopolitical and economic mix in the world. The major development in the Energy sector has been the shale revolution in the US. Shale oil and gas “fracking” in America has led to a dramatic increase in US energy production. The impact of this extraordinary production growth is becoming increasingly apparent. It is resulting in the Renaissance of American Manufacturing and the movement of “reshoring” as US industry starts to invest more significantly domestically to take advantage of the very competitive input costs. Within the global resources space, it is giving a boost to sectors such as US refining and chemicals companies, who today enjoy a major competitive advantage because of lower input prices feeding through to stronger margins.


The changing Global Energy climate and modern Technology are opening up significant investment opportunities both for multinational oil and gas majors, but also energy conscious manufacturing companies who are moving fast to maximise new opportunities. Raw materials are changing in the manufacturing sector as Aluminium and High Performance plastics increasingly replace other metal - in particular steel, in certain components of the Auto, Construction and Capital goods sectors. This is opening up new opportunities for Specialised Chemical and Industrial Gas companies which are now among the most attractive segments of the investment universe.


Global resource companies offer investors an exposure to the dynamics of a sector in constant evolution. The most dynamic companies, well positioned in the right geographical regions could surprise investors positively over coming years with their capacity to generate growth in earnings and steady cash flow to pay regular and growing dividends. Additionally investing in Shariah-compliant companies means that the focus is put on companies with solid balance sheets and low debt levels, a potential way to attempt to assure consistent returns over the years.


There is and will always be potential in investing in global resources equities worldwide. The key is to have the flexibility to adapt to economic changes and to take advantage of all global investment opportunities.


Sudeshna André & Delphine Pelloile - Amundi, March 2013

Please note that these are the views of Sudeshna André, Commodity Equities Investment Specialist & Delphine Pelloile, Amundi Islamic Product Specialist and should not be interpreted as the views of RL360°.

Author

Sudeshna André &
Delphine Pelloile

Amundi - March 2013

Please note that these are the views of Sudeshna André, Commodity Equities Investment Specialist & Delphine Pelloile, Amundi Islamic Product Specialist and should not be interpreted as the views of RL360°.

360° fund links

A range of Amundi funds can be accessed through our guided architecture products Oracle, Paragon and Quantum, and also through our PIMS portfolio bond.