BlackRock’s Swan predicts 2016 energy rebound
BlackRock’s head of Asian fundamental equities is betting on a rebound in energy and commodity prices in the belief that the sector’s overcapacity issues will begin to fade next year.
Andrew Swan, who runs a range of portfolios including the £74m BlackRock Asia Special Situations fund, launched in 2014, suggested excess supply would no longer weigh so heavily on commodities in future.
The price of a range of resources, from oil to iron ore to copper, has plunged in the past 18 months, in part due to the impact of China’s shift away from an investment-led economy to one more focused on consumer demand.
Firms whose business models were underpinned by the country’s historically high demand for resources have begun to rein in operations as a result.
But Mr Swan said he now expected a shrinking of supply, particularly in China, to aid a recovery in prices.
“We have been increasing our exposure to stocks in the energy sector,” he said.
“If you look at energy and oil, the problem has been mostly on the supply side. I think supply will be declining next year, which will be positive for energy prices.
“We need to watch some of the old economic sectors in China because areas such as steel look like having capacity reductions.”
He added: “You will see more supply taken out of the system, particularly in commodities, so we may get a cyclical improvement in demand. That’s something to watch closely. We have got to be flexible.”
Mr Swan joins a chorus of managers who have begun to shift portfolios in the anticipation unloved sectors such as energy could enjoy a recovery, though like many he is yet to move heavily overweight.
At the end of October, one of Mr Swan’s portfolios, the BlackRock Asia fund, had a 4.8 per cent weighting to energy – a slight overweight – compared with 28.3 per cent in financials and 23.9 per cent in information technology.
Beyond China, which made up 31.8 per cent of the vehicle’s exposure, the manager also favoured countries such as India, where he thought business reforms would have an effect.
He said: “We still like India. I think it’s heading in the right direction but perhaps slower than we thought. We are going to see a continuation of policy that supports long-term growth. The power sector is an area where positive change is occurring.
“The goods and shares tax [unifying the nation’s disparate tax systems] will be implemented next year and will be supportive of longer-term growth and reduce inefficiencies in the system.”
He added: “We have a favourable tailwind in demographics in India. There are pockets of debt but [the country] is generally underleveraged.”
The BlackRock Asia fund shed 2.8 per cent in the past year, compared with the Investment Association Asia Pacific ex Japan sector’s fall of 4.1 per cent.
By contrast, the Asia Special Situations fund returned 5.7 per cent over the period, data from FE Analytics shows.
In November, Capital Economics predicted the MSCI Emerging Markets index could rise by “at least 15 per cent” in 2016, in spite of stocks remaining vulnerable to sell-offs.
Similarly, analysts at Barclays used a recent note to tip emerging markets as a key call for next year, saying equity inflows for the region had been two standard deviations below developed market flows in the past 12 months. The analysts said this pointed to “outperformance for emerging market equities over the following six months”.
