over 1 year ago • 2 mins
Of all the assets Bank of America (BofA) lists in its 2023 outlook, it’s expecting the best returns from copper. And it’s easy to see why. Firstly, the US dollar has likely peaked and commodities such as copper – which tend to share an inverse relationship with the greenback – are likely to see an increase in demand as they become cheaper for buyers with other currencies. Secondly, China consumes 52% of the world’s copper, and the eventual reopening of the second-largest economy should spark new demand, as factories and building projects get back on track. Thirdly, there’s still a significant shortage of copper inventories, and the time it takes for mines to come online – a minimum of around seven years – is still too long to meet the existing and future demand. Lastly, the strong shift to net zero is a multi-year tailwind for copper. Electric vehicles use roughly 2.5 times the amount of copper as a traditional combustion engine vehicle, and it’s an important input in charging stations too. General Motors forecast that electric vehicles will comprise 17% of sales by 2025, up from almost 10% in 2021.
Although inflation is expected to decline, allocating some of your capital to inflation hedges such as copper could be prudent since there’s no guarantee we won’t see another spike at some point. My only fear about this trade is that copper is highly sensitive to global growth, which is looking increasingly ominous. However, the aforementioned factors – particularly the supply shortage – could outweigh the lackluster growth dynamics and copper’s valuations are undemanding (i.e. it’s cheap). So if you’re bullish on copper’s prospects, there are a couple of investments at your disposal – the iPath Series B Bloomberg Copper Subindex Total Return ETN (ticker: JJC; expense ratio: 0.45%) buys copper futures, and the Global X Copper Miners ETF (COPX; 0.65%) buys shares in companies that mine the metal.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.