While raw material prices and mining stocks have rallied in anticipation of the boost to demand, fund managers are still finding value in the resources sector.
Fund managers are preparing their portfolios for another year of bumper returns from the resources sector as China’s reopening from COVID-19 restrictions accelerates, putting a rocket under raw material prices.
“The removal of restrictions, wave of infections and reopening of China appears to be happening quicker than expected. The market is not adequately pricing in the probability of an earlier-than-expected rebound in economic activity and commodity demand.” “It certainly has a bit more upside in the short term compared to some of the base metals that have run already.”
One of the Perennial fund’s largest holdings is in Stanmore Resources because Berridge is optimistic about the short-term prospects for metallurgical coal which is poised to benefit from increasing steel demand in China. Last week, ANZ reported that traffic congestion so far in January in China’s 15 key cities was 21.6 per cent higher than the same period in 2022. Meanwhile, domestic flight activity jumped to about 65 per cent of pre-pandemic levels in late December, from just 22 per cent in November.
Goldman Sachs, meanwhile, nominates oil as the best reopening play, predicting that Brent prices could reach $US110 a barrel by the third quarter if China, and other Asian economies, fully reopen from COVID-19 restrictions.
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