By Nick Hedley
BlackRock, the world’s largest asset manager, says
that despite recession risks, there are opportunities for investors in
commodities as the transition to clean energy gains momentum.
In its midyear outlook, the asset manager says the “great moderation”
– a prolonged period of steady growth and inflation, combined with a bull
market for equities and bonds – is now over.
In the short term, BlackRock says, increasingly politicized
central banks are tightening policy too aggressively given that inflation is
being driven by spending shifts and production constraints, rather than
excessive demand.
“We ultimately expect central banks to live with inflation,
but only after stalling growth. The result? Persistent inflation amid sharp and
short swings in economic activity,” the firm says in a report co-authored by its
vice chairman, Philipp Hildebrand.
Nevertheless, a recession would likely be shallow, and there
are opportunities for investors in structural trends – particularly the energy
transition.
“Although current policy isn’t sufficient to achieve net
zero by 2050, we think the transition could accelerate as tech develops,
societal preferences shift, and the human and economic cost of climate change
becomes clearer,” BlackRock says.
Markets have not yet fully priced in the transition, which
will boost the valuations of companies that are better prepared for it. These
include “already green” companies, carbon-intensive firms with credible
decarbonization plans, and companies that supply the materials, equipment and
services needed for the transition.
“Commodities are a prime example: Demand for some
transition-critical minerals is expected to grow quickly,” BlackRock says.
Minerals needed in the transition include lithium, cobalt,
copper, and nickel.
Olivia Markham, natural resources portfolio manager at
BlackRock Fundamental Equity, said: “Going green and electrifying the
power base will be incredibly metals intensive.”
Commodities markets are already tight, partly because
producers have underinvested in recent years, Markham said on a webinar.
Thanks to improved capital discipline in the sector,
commodities companies will be able to weather the volatile environment ahead and
could continue to outperform on a relative basis, she said.
BlackRock added that investors “should start positioning for
net zero.”
“We believe investors can be bullish on both fossil fuels
and sustainable assets, as we see a key role for commodities in the transition.
Yet our work finds that changing societal preferences can give sustainable
assets a return advantage.”
BlackRock’s assets under management crossed the $10 trillion
mark in the final quarter of 2021.
