China to remain global commodity driver, says JPM's Henderson

(Ian Henderson - Gérant de fonds chez JPM Asset Management)

With China consuming 50% of the world’s iron ore and at least 20% of the world’s other commodities the country is set to be a leading driver of the natural resources sector, according to veteran JP Morgan manager Ian Henderson.

Henderson, who manages the JPM Natural Resources fund, said that the region is well on track to hit its 8% GDP growth target and while there has been a degree of anxiety recently regarding fiscal stimulus the government is determined to keep to its spending plans and targets.

Henderson said: "As is now evident, the market for resource stocks seems to have bottomed in November last year. Since then it has been quite a remarkable period, with smaller companies leading our Natural Resources funds up. One of the main catalysts for this rise is the enormous amount of fiscal stimuli worldwide, and in particular, in China.
Here, fixed asset investment is at around 30% growth rate year on year. And, of course, this means that demand for certain commodities to sustain this growth – such as iron ore and coal – has also been elevated. Many other commodities have doubled in price since their lows. There is an air of confidence that we may have reached the bottom as far as economic woe is concerned."

Henderson said that many other Chinese leading indicators are also pointing up and, in the case of loan growth, astonishingly so.
"Inventories of certain commodities, too, will have to be rebuilt. It makes sense, too, to restock when prices are comparatively low, as they are now, rather than wait for prices to climb." he said.
Henderson said the worldwide move towards huge infrastructure projects is another driver for natural resources.
He said that even if you just consider the projected emerging market infrastructure where spending is expected to almost treble from $600 billion in 2008 to almost $1.8 trillion by 2017 there is emormous demand for commodities.
"This enormous investment is to accommodate a considerable migration from rural to urban areas, with hundreds of millions expected to move to cities in emerging markets over the next few decades. Again, the upshot of all this is a strong future demand for commodities."

According to Lipper, the JPM Natural Resources fund has delivered returns of 141%, in sterling terms to the end of July, versus a 88% rise in the FTSE AW/Oil & Gas index.

(Sara Smith - Citywire - 10/08/09)