3 key themes to shape resources in 2020

Daniel Sullivan

Janus Henderson

Whenever we speak to investors and companies, the acceleration of importance, acceptance and policy around environment, social and governance (ESG) issues has become a critical consideration.

Public opinion can be expressed broadly and gather support rapidly, causing shifts in company behaviour and signalling to policy makers that shifts are expected. This trend can be seen playing out in the growth in wind and solar power and the pursuit of the circular economy, which, put simply, is an economy aimed at eliminating waste and ensuring the continual use of resources.

The second key theme is the US/China trade war. A resolution here is appearing more likely and this should give a boost to trading sentiment, activity and global demand for commodities.

The third area concerns a possible agricultural recovery, where the US has had a five year down cycle and expectations are low.

The most important opportunities and risks

After three weak years we are now seeing a revival in exploration, discovery and development across many commodities and countries. Smaller companies are creating value, particularly in gold and oil and gas projects.

Many new lithium supplies were brought to the market in the first lithium boom, resulting in short-term oversupply. Now as the second stage structural demand growth continues, it is likely that the prices will recover and deliver additional projects and output into the fast-growing electric vehicle and storage battery industries.

Is the market supportive of growth for resources companies in 2020?

Leading resource companies are continuing to present great valuations, exhibiting low financial leverage, simplified businesses, strong cash flows and dividends. As this continues, these types of companies should be well sought after and re-rated. The delivery of new high quality discoveries and projects to the market should boost growth rates for companies into the coming years.

Our key chart for 2020

As reflected in Chart 1 below, the second tech-boom, ultra-low interest rates and safe-haven buying has left other major world equity regions behind – particularly commodities, resource equities and emerging markets.

The very nature of markets presents these opportunities regularly over longer cycles and our sector is in a great position for future success.

Chart 1: Growth of $100 across indices

Source: Bloomberg as at 6 November 2019.

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Daniel Sullivan
Head of Global Natural Resources
Janus Henderson

Daniel Sullivan is Head of Global Natural Resources and has over 30 years industry experience. He has previously worked at 90 West, which Henderson acquired in 2015, Goldman Sachs, Deutsche Asset Management, Zurich Scudder Investments and AMP.

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