Environmental, social and governance (ESG) factors can benefit from the short supply of commodities.
As a result, Janus Henderson Investors portfolio manager of the Asia ex Japan equity team Sat Duhra sees great opportunities for commodities to perform well in this environment.
Duhra was speaking on 10 November 2021 at ‘The outlook for investment in Asia Pacific and Japan’ webinar organised by Sub35.
He said: “We’re seeing tighter supplies on some commodities, such as copper for example. Iron ore has previously worked very well.
“We saw very high dividends from these sectors, very strong cash flow and very low cash costs on the names that we own.
“There’s a lot of room for a lot of margin with commodities.”
Durha stressed that copper could particularly benefit with the transition to electric vehicles.
He said: “The time it takes to open a copper mine is about double the time it used to be five or 10 years ago because of environmental or social reason.
“That’s created some tightness in that market, but also the end demand has gone up.
“If you see a greater adoption of electric vehicles, then copper is going to be within that.
“The use of copper in electric vehicles is about two to three times the amount of standard internal combustion engines.”
This is also the view of Amati Global Investors founder and CEO Dr Paul Jourdan.
He said: “Mobilising capital to invest in sustainable mining companies can be a powerful force for good.”
He added that efforts to accelerate global decarbonization could be hampered if leaders attending COP26 do not revise the “oft held and short-sighted view” of mining as a dirty industry.
Durha said that the strength of commodities has supported Australia’s position in his portfolio.
Another sector in Asia that Durha and his team were pleased with is financials.
He said: “Historically, these two sectors have performed exceptionally well when inflationary expectations have risen and we’re seeing that now.
“Financials have also done well. It’s an area that was very underweight before the announcement of a vaccine, but since November last year, it has performed well.”
This is because the asset manager believes there are now greater opportunities in Asia compared to Silicon Valley when it comes to AI.