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A weaker U.S dollar and increased demand are leading reasons why stocks in oil, mining, and agriculture have rallied in recent weeks. Stu Kedwell, Co-Head, North American Equities, explains how the surge is tied to promising economic growth forecasts, and what it could mean for the broader Canadian market. [5 minutes, 45 seconds] (Recorded January 19, 2021)


Hello and welcome to The Download. I’m your host, Dave Richardson. And it is Stu’s day! So that means we have Stu Kedwell, Co-Head of North American Equities with RBC Global Asset Management, with us for his popular visits, almost weekly.

Good afternoon, Dave. How are you doing?

Very well today. And markets are doing well. A lot of it is the familiar names that we’ve been talking about or that people talk about in technology and electric vehicles and all that kind of stuff. But I have just been looking and watching, and lo and behold, some of the areas that have been so out of favor for so many years — agriculture, mining, oil — are showing some real signs of life over the last little while. And I thought I’d check in — since «co-head of North American equities» means Canada — what are your thoughts around what we’re seeing in commodities overall?

Well, a lot of the economy that’s a little bit more economically sensitive, these stocks bottomed in the third and fourth quarter of 2020. Between a weaker U.S. dollar and signs of better demand, many commodities have done extremely well, both hard and soft commodities. The price of lumber probably led the way on the back of housing last year, but at the same time, a lot of these areas. Lumber might be a little bit unique because supply has been curtailed because of things like the B.C. pine beetle and what have you. But around the commodity universe, whether it’s corn where we had some swine flu, which really changed the pork supply, we’ve had a very strong market. Yet, even in the case of corn, I think it’s now 4$ a bushel, whereas its peak in the 2012-2013 area would have been 7 or 8$ a bushel. So, they’re well off the lows, but they could still keep going. In many respects the longer-term thesis is around broader global economic growth starting to kick into gear a little bit, at the same time as the U.S. dollar is weaker. So that’s why you’re seeing some pretty strong moves in commodities, even in things like energy. People debate the long-term demand behind energy because of climate change, which is something that we talk a lot about as well, but in the near term, where you’ve had very little capital invested in any type of near-term supply and you get slightly more demand, you can sometimes get a very much more significant price change. We’ve started to see that. You did mention electric cars, which has played into some areas quite well, like copper. When we think about renewable energy, you’re putting a new source of demand on top of the existing demand curve at a time when there really hasn’t been a whole lot of incremental supply. That could keep things a little bit tighter than they’ve been in the past. So, that’s really happening throughout many of these soft and hard commodities, sometimes for general reasons, sometimes for specific. But the commodity market has been doing better and it looks like it might stay that way.

So Stu, if we look at that from a portfolio perspective, does that suggest to people to maybe take another look at Canada or are there any other areas that people should be thinking about, given that view?

Certainly Canada gets you some interesting exposure to some of those trends. Big businesses in Canada like Nutrien, the old PotashCorp that merged with Agrium. That’s a very interesting way, with a pretty good dividend, in our minds, for agricultural exposure. Canada obviously has energy and a host of other things when it comes to basic materials. But it also really plays into emerging markets where you’ll get some exposure to this specific type of growth. But also, as the global economy picks up, they tend to accelerate a little bit faster during periods of time like this as well. It just means good things for consumption in some of those countries and all parts of their broader economies, in addition to just basic materials. Of course, we have a great emerging markets team in London for global asset management.

Yes. I had Philippe Langham and Laurence Bensafi on this podcast, and they do a terrific job in the emerging market space, large cap dividend and small cap, where they have specific areas of expertise. So particularly if you add in the weaker U.S. dollar, along with this new strength in commodities that makes emerging markets exciting. So Stu, a little bit of a shift from where we’ve been for a lot of the last 12 months, but an interesting shift, particularly for Canadian investors. As always, thanks for your time today.

Great. Thanks for having me, Dave. And thanks for everyone who listened.


Recorded: January 19, 2021

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