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JPMAM’s Henderson says commodity run is sustainable for the long term

JPMorgan natural resources manager Ian Henderson says he sees no reason why commodities should not see the same growth in the next 10 years as they have seen in the previous 10.

Henderson says the continued growth in infrastructure and population, especially in emerging markets and compelling valuations are all set to bolster the sector.

Henderson says the rise in population of 70 to 80 million a year has to be supported as does growing urbanisation in emerging nations like India and China.

He says: “It’s a self-propagating cycle. A huge drift towards the cities accelerates with urban populations in India and China currently standing at 29 per cent and 40 per cent respectively. Compare this though with the US which currently stands at 81 per cent.

“As this drift continues in emerging market countries, more steel is needed to build the new railways, more coking coal is needed to smelt the steel and more energy, whether it be coal, oil or uranium to name a few, is needed to power the railways and the new homes. And all of this has little to do with the relatively short-term effects of credit crunches, recessions and belt tightening around the world as they are largely government mandated projects. These will continue as nations recognise the need to spend on their infrastructures to further increase their wealth, irrespective of short-term blips.”

As for oil prices, Henderson says it is not governed purely on speculation.

“I cite a combination of production problems and geopolitical issues as being the main factors with little spare capacity in Saudi Arabia, Nigeria and Mexico and the potential of further unrest in Iran. Not forgetting demand such as the rapid profusion of cars in China.”

Henderson says investors should also not be concerned by stretched valuations as many commodity prices are up strongly leading to earnings revisions. Meanwhile the scramble for attractive reserves to production is ensuring corporate activity is rife.

“With global population and infrastructure growth continuing, so too will the want and need for resources especially within emerging markets so it seems almost foolhardy to dismiss the current run as unsustainable.”

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