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  • Goldman's Metal Bull Has Tunnel Vision

    Goldman's Metal Bull Has Tunnel Vision

    (Bloomberg Opinion) -- The metal bulls are charging. Goldman Sachs Group Inc., which sees a commodities rally ahead on a par with the 2000, says copper could test its record high of just over $10,000 by 2022. The metal has already surged to almost $8,000 this year. Nickel is also on a tear, zinc has climbed more than 50% since March, and iron ore is closing in on $150 a ton.The post-Covid future does look rosy. Only, we’re not there yet.Exuberance is only natural, to some extent. The vast majority of us will be glad to see the end of a year spent in varying stages of lockdown. We are all focusing ahead. In commodities terms, that translates into looking through the next few months of winter Covid-19 surges, extra closures, vaccine distribution delays and other hiccups, into a world where life returns to normal.The optimism is also grounded in reality. There is no question that things are looking up for commodities, and particularly base metals. There is significant government spending globally, the U.S. dollar is weak and monetary policy is loose. Industrial and consumer demand will recover. Supply, meanwhile, will probably struggle to keep up with something close to a V-shaped recovery, after a long period of frugality following the splurge of 2012 and 2013.Copper is a good example of what’s at stake. The red metal has had its sharpest rally in a decade, rising more than two-thirds from its March lows. That’s largely thanks to China, where strong demand, infrastructure spending and government stockpiling have offset weakness elsewhere — even if imports have moderated of late. The State Reserve Bureau has added as much as 500,000 tons of copper inventories in 2020, according to analysts at Jefferies Group LLC.Appetite is expected to increase globally as other economies bounce back, and copper-heavy green stimulus plans kick in, at a time of low inventories. Demand may exceed output. Glencore Plc, a major producer, last week put the copper project pipeline at pre-supercycle lows. Goldman sees the tightest conditions in a decade, and others too, to a greater or lesser extent, project deficits ahead.Yet there’s a risk that the commodities market is paying more attention to the light at the end of the tunnel than to the darkness before we get there, as Vivek Dhar of Commonwealth Bank of Australia puts it. The road is still long and bumpy, even for copper.For a start, green shoots of recovery seen in the summer and autumn are wilting as winter sets in and Covid case numbers rise. U.S. Federal Reserve Chair Jerome Powell has been among those warning of challenges and uncertainties in the near term as outbreaks widen in the U.S. and beyond. In Europe, a second wave of infections and lockdowns is hurting — even if restrictions are less stringent than the first time around.While vaccine approvals are undeniably good news, inoculation on a scale that will dent hospitalizations and deaths is some way off. Vaccines won’t lead to automatic lifting of all travel and other restrictions. That will take months, or more.  Then there’s China, which has single-handedly held up global commodities demand this year, but where appetite may be cooling. That doesn’t mean a drop. Still, uncertainty surrounds exactly what the end of stimulus-fueled growth will look like, and indeed the exact shape of consumption in an economy attempting to hit President Xi Jinping’s net-zero emissions target. There are also questions over the extent of debt risks and what that may mean for the world’s largest consumer of commodities, as non-payments rise. Five state-linked companies — from a chipmaker to an auto company with ties to BMW AG — have defaulted in the onshore bond market this year. That’s the most since 2016.  Market bulls are no doubt right about where we end up in a year or so. Goldman may well be correct in asserting that green spending can rival the investment splurge of 20 years ago, and a consumer boom is possible. We just need to see it happen.   This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Commonwealth Bank of Australia Sponsored ADR (CMWAY) Upgraded to Strong Buy: Here's What You Should Know

    Commonwealth Bank of Australia Sponsored ADR (CMWAY) Upgraded to Strong Buy: Here's What You Should Know

    Commonwealth Bank of Australia Sponsored ADR (CMWAY) has been upgraded to a Zacks Rank 1 (Strong Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

  • What Beyonce Can Tell Us About M&A

    What Beyonce Can Tell Us About M&A

    (Bloomberg Opinion) -- If you could have bought the future earnings of the members of Destiny’s Child in 2001, would you really have turned it down because you weren’t sure where Kelly Rowland’s career was headed?That’s a good analogy for Ares Management Corp.’s interest in AMP Ltd., the Australian asset manager that’s lost more than two-thirds of its value over the past three years amid an official investigation into misconduct in the financial sector, combined with boardroom turmoil and a sexual harassment scandal. While the focus has been on the problems of AMP’s retail divisions, it still has a Beyonce on its books that a bold investor can pick up on the cheap.Years of bad publicity have been devastating to AMP’s retail-focused wealth management business. Revenues that were running at more than 1.1% of assets under management five years ago will be in the region of 0.7% this year. Even that’s not enough to stem the flood of withdrawals from customers. Net cash outflows since the start of 2018 have amounted to about A$14.67 billion ($10.34 billion), equivalent to nearly half a billion dollars a month.Things look very different, though, when you consider AMP Capital. This division is a global infrastructure and real estate business that could be likened to Macquarie Group Ltd., with investments in airports, rolling stock, parking garages and office blocks across multiple continents.Macquarie is currently valued at about 7.6% of its A$607 billion in assets under management, at the higher end of the typical 3% to 8% range for the sector. Ares, for its part, runs at about 6.1% of its $179 billion AUM. Even after surging 22% Friday on news of the takeover interest from Ares, the whole of AMP is worth only A$5.36 billion. That's roughly 3.4% of AMP Capital’s A$190 billion in AUM, and 2.1% compared with the A$253 billion at the group as a whole.Suppose the retail-focused wealth management business and bank turn out to be duds. Ares is still picking up a global infrastructure investor on the cheap, at a time when the prospects for such businesses look rosy. Record-low interest rates and pandemic-hit global economies are likely to start channeling yet more money into physical assets over the coming years.The problems with AMP’s core business have even been modestly beneficial to AMP Capital. The fees it charges to the company’s wealth management arm, at 18.1 basis points in the first half of this year, are not much more than a third of the 45.7 basis points levied on external investors. As AMP’s wealth management customers withdraw their cash and external investors show ongoing demand, that’s weighting the business more and more toward its most profitable clients. Fee income last year was up 56% over its levels five years earlier.To be sure, any buyer is going to have to decide what to do with those retail businesses. It’s anyone’s guess when the tarnished image of AMP’s wealth management arm will recover. Meanwhile, its bank has a A$20.21 billion mortgage book that’s likely to suffer from a shaky pandemic-hit property market and net interest margins that are being squeezed by competition. Still, it’s not impossible that a new American owner could help on that front. AMP was traditionally one of Australia’s most widely held stocks. Only Commonwealth Bank of Australia has more individual shareholders than AMP’s 723,387. That means that the twists and turns of its half-yearly reporting cycle are a constant reminder of its troubled past to local investors who should be its core customer base. If you wanted to rebuild AMP’s image, there would be worse ways of doing it than burying its performance in humdrum aggregate numbers reported out of Los Angeles.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.