April is challenging for self-reliant South Africans. The volume of poorly spaced public holidays has turned it into a productivity challenge rivalling SA’s four week Silly Season from mid-December to mid-January.
But even by that low standard, April 2022 was awful, overlayed by a sharp fall in prices of offshore investments. Fears of rising global inflation, the war in Ukraine and the disastrous Chinese management of Omicron combined to hit equity markets hard. Especially in the US.
In yesterday’s BizNews Share portfolio webinar, I offered context on recent developments. Click here or on the image above to watch the recording. In summary: equity investing is a long-term endeavour. Those who keep calm when others are panicking are always rewarded. In time.
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At noon today I’m expecting to hear a similar message from Magnus Heystek during the first half yearly feedback on the R1m Offhore v Local challenge between him and Piet Viljoen. Piet is currently well ahead. Sure to be a fascinating discussion. Watch out for the link to the recording in tomorrow’s newsletter.
More for you to read today:
- Amazon Endures the Union ‘Wave’. Editorial Board of the WSJ says this week’s vote is a reminder that employees make up their own minds.
- Stocks and Bonds Are Falling in Lockstep at Pace Unseen in Decades. Bonds have long been viewed as a hedge against expected swings in stocks. That hedge has evaporated this year.
- Elon Musk Tweeted My Cartoon. Designer of the now famous political stick man explains how commentators on the left set about debunking his ‘lived experience’ with charts and abstractions.
- How the Ukraine War Changed History. The Russian invasion is a harsh reminder to Western leaders of the importance of hard power.
China’s Covid-19 Outbreak Cools Metals Rally
Lockdowns are seen eroding demand from world’s largest commodity consumer
By Hardika Singh for The Wall Street Journal
The pandemic’s resurgence in China has helped pull metals prices down from highs hit following Russia’s invasion of Ukraine.
Worries that new economic lockdowns will erode demand from the world’s largest commodity consumer have dragged aluminum and tin down more than 17% from their recent all-time highs. Copper, vital to everything from construction to electronics, has lost 12% since its March record, while zinc and lead are off 12% and 11% from this year’s highs, respectively.
Analysts say Covid-19 lockdowns and travel restrictions in major Chinese cities could weaken demand for metals, helping offset the supply-chain snarls and dwindling inventories resulting from the Russian invasion. While prices for many metals remain above prepandemic levels, their retreat from records eases some immediate concerns about supply shocks adding to an inflationary spiral.
This year’s extended surge in prices for raw materials has helped push inflation to a four-decade high, spurring the Federal Reserve to signal a rapid course of interest-rate increases in response and sparking declines in stocks and bonds.
China is key to global commodities markets, with its large manufacturing sector accounting for about half the world’s copper consumption, while leading the globe in aluminum production and use. Many economists have already warned that the Chinese government will miss its growth target of around 5.5% this year, and investors fear its zero-Covid policy will result in more lockdowns to come.
The iShares MSCI Global Metals and Mining Producers exchange-traded fund fell 11% in April, the largest monthly percentage decrease in over two years. Companies in the ETF get 27% of their revenue from China, according to FactSet.
“With their [Chinese] economy being sidelined, this run-up in prices has run into a bit of a wall,” said Ed Meir, a consultant focused on metals at brokerage ED&F Man Capital Markets. Mr. Meir believes metals prices have peaked in the near term but prices will remain higher than they have in the past.
Earlier in the year, some investors piled into commodities to hedge portfolios against persistent inflation and geopolitical turmoil. Russia is also a large metals producer, exporting more than 15% of the world’s aluminum and about 10% of nickel during 2020-2021, according to a note by Citi Research.
The flow of investor dollars into general commodities mutual and exchange-traded funds, however, has slowed recently, according to data from Refinitiv Lipper.
“This is the first real test for a lot of investors that might not have a long track record of allocating to commodities. What’s your pain threshold?” said Luke Kawa, asset allocation strategist at UBS Asset Management. “A lot of what you’re seeing is that in some cases, the pain threshold is not too high at all.”
Mr. Kawa said his firm isn’t looking to add any more commodities exposure in the near term.
Despite the recent declines, prices remain elevated for a broad swath of metals. Crude-oil prices have backed off their post-invasion highs but are still up 36% so far this year, while European natural gas is four times the price it was a year ago, raising the cost of metals production.
Other factors look poised to weigh on prices, however. A stronger U.S. dollar has weighed on metals, which are priced in the U.S. currency, increasing their cost for overseas buyers. The WSJ Dollar Index in April logged its largest one-month percent climb in about a decade, lifted by expectations that the Fed will raise rates rapidly, including a potential half percentage point move this week.
“The commodities backdrop right now is very complicated because you say, ‘Hey, global growth is slowing down,’ and by itself that should be somewhat of a negative,” said Keith Lerner, co-chief investment officer and chief market strategist at Trust Advisory Services Inc. “On the other side, you have the invasion.”
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