Market Commentary- Metals Team September 2021

15 October 2021

Posted by Mark Smith on 15th October 2021

The sales revenues for the top 100 Chinese developers contracting 36% y/y in September. As a result, we would expect to see further weakness in new construction starts over the coming months as developers struggle to bring leverage ratios in line to meet government requirements. Given the potential employment implications of this, we anticipate a push towards state-sponsored housing construction next year, most likely ahead of the Chinese New Year period.

We will be watching the market closely over the next 3 months, should any Chinese market weakness create any contagion in the financial markets and opportunity for the ASMF to invest in the base metal sector during time of weakness.  In the meantime, the increased market uncertainty, slower global growth indicators and inflationary pressures from high energy prices, provides supportive reasons for the fund to remain overweight precious metals. The prospect of ‘transitory inflation’ seems optimistic.  Recently, The Fed Chair Jerome Powell adjusted their views. After expecting inflation to be transitory in August, there was a re-think in late September, acknowledging it might not be exactly transitory, saying, "The process of reopening the economy is unprecedented, as was the shutdown. As reopening continues, bottlenecks, hiring difficulties, and other constraints could again prove greater and more enduring than anticipated, posing upside risks to inflation”.

Fund strategy and methodology

During September we added another Graphite company into the fund.  The Company is working towards developing a fully-integrated source of carbon-neutral battery anode material in Canada, sourced from the western world’s largest high grade graphite deposit. In addition we invested in a new gold development company, as part of a capital raise to purchase a prospective 2Moz gold deposit in Bazil, for a material discount to market value (at US$62/reserve ounce). We continue to look for investments in the speciality metal sector, and have identified our potential copper investments, should market weakness provide an opportunity. In the meantime our focus is to reduce the fund volatility, whilst retaining optionality in the precious metals sector.