We are already seeing a pick-up in the buying of some major commodities such as copper and metallurgical coal by Chinese interests.  If growth slows further then this will just become excess inventory, but we think it is more likely indicative of an expectation of a pick-up in growth over the balance of the year.  The Chinese Commerce Ministry said today that the nation’s trade growth is improving, adding to a rebound in lending in signaling that a slowdown in the world’s second- biggest economy may stabilize. China can achieve a 10 percent gain in exports and imports this year if the world economy doesn’t worsen further and that trade growth had “sound momentum” in June.  While fears about China’s growth has lead many investors to believe that the great bull market in commodities is now over, our view is that commodities remain in a secular bull market that is positioned to last another 7 to 10 years.

Another economy that has slowed recently but where stock prices have fallen even further is Russia.  Worries about the oil and gas industry and commodities in general have pushed stocks down nearly 30% from their early March highs and over 40% since their earlier peak in April, 2011.  Russian stocks now offer exceptional value for investors.  While there is always more political risk, Russian equities are trading at a 55% discount to world equities, on a forward PE ratio of just 4.9 times.  Moreover, despite lower crude oil prices, in local currency, Russian forward earnings are not declining but rising relative to the world; up 3% over the past month.  We have recently moved to an overweight position in Russian stocks in our foreign balanced funds.

In terms of other commodities, we still think Uranium has one of the better outlooks.  The Japanese government recently approved the restart of two reactors located in the Oi municipality following the granting of approval from local leaders.  Supply growth continues to be constrained by production cost issues while the re-start of some Japanese reactors plus the massive growth in Chinese reactors over the next 5 years should keep demand growing. Uranium prices are currently holding around US$51 per ton but the long-term contract price is up at US$61 per ton and many of the newer ‘greenfield’ supply projects need a price closer to US$80 per ton to be viable.  Uranium Participation Corp (U on the TSX), which is trading around $5.50, is only reflecting a Uranium price of US$40 per pound, a substantial discount to the market and, in our view, a tremendous buying opportunity.  Within the Uranium producer group, our top picks included Uranium One (UUU on TSX) and the industry leader, Cameco (CCO on TSX).

1 2 3 4