TSX/TSX-V: At the beginning of the year, our investment aligned with two major themes: The reduction of greenhouse gas emissions and the rising amount of negative-yielding debt.
Whether you believe in human-driven climate change or not, the fact is that many regional economies including the European Union, Japan, China, the U.S. (California) and India are implementing plans to reduce their carbon footprint. There are several paths that include a higher penetration of electric vehicles and hybrids in the medium and long term combined with a higher loading of metal in catalytic converters in the near term. Our focus includes copper, as the amount required in each vehicle is much higher than the required nickel for combustible engines and batteries. The battery technology is apparently moving to higher nickel content versus manganese and cobalt. In the near term, combustible engines require higher palladium loadings to meet emission standards.
The amount of global negative-yielding debt reached over US$16 trillion in late summer 2019 and now it’s around US$13 trillion. Although gold offers no yield, at least it’s not negative. Importantly, gold was up in multiple currencies in 2019 and continues to offer positive returns in several despite the recent pullback. The recent movements in the gold price have been driven somewhat by the spike in volatility, as market sentiment has turned from greed to fear. Gold has a role as a safe haven asset, but the impacts do not tend to be long-term.
The risk of a global slowdown in economic growth due to the spread of COVID-19 dwarfs the threats of last year’s trade war between the U.S. and China. China’s global ties make it an important part of the global economy. In addition, the rise of cases outside of that country (South Korea, Iran, Japan and Italy among others) is adding to the uncertainty.
A couple of weeks ago, Apple lost about US$235 billion in value after warning investors that its earnings would be negatively impacted by lower production and demand from China. Last week, Goldman Sachs’ equity strategists informed their clients that the average earnings growth for all U.S. companies will likely be flat in 2020 due to the epidemic, leading to a frantic offloading of positions and a herd-mentality run for the exit.
Brent Cook and Joe Mazumdar on BNN.ca PDAC Market Call Monday March 2nd @ 1200ET |
