Copper, uranium and bonds are three picks of Stake in 2023. Pic: Getty Images
Experts
As we embark on a new year markets analyst at Australian share trading app Stake Megan Stals told Stockhead there are three key investing themes to watch in 2023.
Stals said copper will be an integral part of the green energy transition, playing a vital role in electrification from EVs to solar PVs.
She said there has been forecasts copper demand could treble by 2040, but stockpiles closed 2022 near record lows.
“So it’s no surprise that Goldman Sachs expects prices to go from US$8500 per ton to US$11,000 per ton in 2023, with further potential growth in 2024,” she said.
“That said, copper is a bellwether for the world’s economy, and given China’s elongated zero covid-19 policy in 2022, and an uncertain global outlook, the price has fallen around 11% over the past year.”
Stals said naturally, many miners have been discouraged from bringing new projects online, increasing the likelihood of longer term shortages.
Political unrest in major copper producing nations such as Chile, Peru and the Democratic Republic of Congo have also harmed supply.
Stals said in the short term, the prevailing economic uncertainty means some analysts are bearish on copper, but supply and demand factors suggest an upward trajectory over the long term.
“Copper is likely to remain volatile in 2023, but is also expected to generate more interest for investors,” she said.
As the worldwide energy crisis rages on, Stals said the appeal of the nuclear industry has been revived.
She said 2022 has seen many positive changes, including a ruling from the European Commission denoting it as a sustainable energy source, extended lifespans of nuclear power stations in Germany and Japan, and the US Inflation Reduction Act providing tax credit incentives.
“China and India are also ramping up their commitment to nuclear power, with the former planning to build between six and eight reactors per year by 2025,” she said.
Due to sustained low uranium prices since the 2011 Fukushima disaster, many miners have left projects on care and maintenance.
But Stals said the drawdown of stockpiles by major utility companies will also fuel higher demand for new mines.
“Australia is fortunate to sit on the world’s largest proven uranium reserves and this means some ASX-listed miners could benefit in 2023,” she said.
“It’s worth mentioning that several analysts say uranium prices of at least US$60 per pound are needed for more operations to be profitable.
“Consistently lower prices remain an obvious headwind for uranium miners, however, this also means there’s unlikely to be a massive surplus of the commodity any time soon.”
Stals said those that are closest to reaching production will be in the best position to cash-in if the price does eventually rise.
Stals said the yield gap between stocks and bonds has greatly narrowed since the covid-19 crisis.
“Bonds went out of fashion following the global financial crisis and equities have generally outperformed over the period to 2022,” she said.
After a terrible year in the stock market, Goldman Sachs notes that some investors don’t feel adequately compensated for the extra risk that comes with equities, leading them towards fixed income options.
“As long term bond issuers provide higher coupon payments, to compensate for increased inflation risk, the current starting yield for 10-year US and Australian government bonds sits at around 4%,” Stals said.
She said inflation levels decline and central banks start to slow, or even reverse rate hikes over the next 18 months, today’s higher yields could become more attractive, sparking a rise in market prices.
“Bonds tend to become more attractive as concerns about a recession rise and expectations for equity returns deteriorate,” she said.
Recent data from Betashares reveals its fixed income ETFs saw the biggest inflow of funds when compared to other sectors.
“While bonds are not the most exciting investment, they are increasingly appealing for those looking to mitigate risk, and ETFs make them more accessible than ever,” Stals said.
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