Articles & Interviews
4 May 2023
The Incoming Challenge in Metals and Mining Sectors and its Impact on Emerging Markets
The shift towards low carbon energy is a key part of addressing the climate challenge. McKinsey's January 2022 study 'How the metals and mining sector will be at the core of enabling the energy transition' defines the move to a net-zero economy as reliant on metals and mining, noting that solar or wind power require 200-300% more metals than gas-fired plants. Similarly, building electric or hydrogen engines requires more materials than traditional combustion engines.
The paper 'Return and Volatility Transmissions between Metals and Stocks' highlights the forecasting power of industrials and precious metals returns on the Emerging Asian Markets returns between January 2000 and June 2018 and during other sub-periods like the Great Financial Crisis or the Chinese stock market crash. It found a unidirectional return spillover from both precious and industrial metals to most of the Asian equity markets in the entire period as well as the other sub-period except during the Chinese crash. It also analyses optimal weights and hedge ratios and suggests that adding metals to a portfolio of emerging Asian stocks improves its risk adjusted returns and helps to effectively hedge against stock risk exposure. A naive 80/10/10 mixture between respectively Emerging Markets Index, Industrial Metal Spot Index and Precious Metal Spot index exhibit an annualised return of 4.50% subject to an annualised volatility of 19.20% over the last 30 years, compared to the Emerging Markets Index, which returned 3.86% annualised with an annualised volatility of 21.90%.
Junior Investment Analyst
The figures, comments, opinions and/or analyses contained herein reflect the sentiment of RAM with respect to market trends based on its expertise, economic analyses and the information in its possession at the date on which this document was drawn up and may change at any time without notice. They may no longer be accurate or relevant at the time of reading, owing notably to the publication date of the document or to changes on the market.
This document is intended solely to provide general and introductory information to the readers, and notably should not be used as a basis for any decision to buy, sell or hold an investment. Under no circumstances may RAM be held liable for any decision to invest, divest or hold an investment taken on the basis of these comments and analyses.
RAM therefore recommends that investors obtain the various regulatory descriptions of each financial product before investing, to analyse the risks involved and form their own opinion independently of RAM. Investors are advised to seek independent advice from specialist advisors before concluding any transactions based on the information contained in this document, notably in order to ensure the suitability of the investment with their financial and tax situation.
Past performance and volatility are not a reliable indicator of future performance and volatility and may vary over time, and may be independently affected by exchange rate fluctuations.