Speaking at the Morningstar Investment Conference 2018 on Thursday, Platinum Asset Management co-founder and former managing director Kerr Neilson revealed pockets of opportunities to be found in emerging markets that “the market doesn’t believe at all”.
“As we urbanise, as societies urbanise, it calls forth for much greater use of resources, in particular metals and of course energy,” Mr Neilson said, pointing out that copper usage intensity was demonstrably “almost linear with urbanisation”.
“What I'm trying to highlight here [is that] there's a lock-step link between urbanisation and the use of metals and energy.”
Projecting more than a decade into the future, Mr Neilson predicted: “By 2030, most of us will be driving a car that is fully electric and those who are not will have a hybrid one.”
The implications of this are that the demand for copper will double, as around 60 kilograms of copper is needed to create an electric car than the 30 kilograms needed for a normal fuel-powered car.
Furthermore, a charging station and updating the grid would be a further 1.5 kilograms and 10 kilograms of copper, respectively, he said. “We're talking about 4-5 million tonnes of copper in addition that's required.”
“It's a really interesting world we're entering, where these electric metals which we tend to favour look to be very tight. Even [for] nickel, effectively about 35kgs for battery,” Mr Neilson said.
“So, a huge growth in these metals, and many of you I know would be interested in lithium, which is the same plane.”
The fund manager co-founder pointed to another graph which showed how much the demand for certain commodities had increased or decreased over two decades.
“Grains haven't changed much, oils have increased a little, but the real change has come from metals – huge change. And look at the energy offtake,” Mr Neilson said.
India was “very early in its transformation” and “virtually at the starting blocks”, he added.
Ultimately, while equities would continue to provide “decent returns”, the opportunities would not be dispersed equally: “It will be concentrated in some places more than others”.
“It's time now perhaps to shift your gaze east towards the emerging markets. Urbanisation is a huge influence on the next few decades and this emerging middle class will want all the things we take for granted.
“I think we're at critical take-all stage where these countries now have reached that magical 5000% ppp per head,” Mr Neilson said.
“I think there'll be some wonderful returns from what look[s] like boring companies, and indeed from the emerging markets.”
