Economic recovery in China, resurgent global vehicle sales and a muted rise in real interest rates on the back of rate hikes by the U.S. Federal Reserve may drive gains for some industrial and precious metals in 2022, analysts said in recent research looking at the year ahead.
"Investors getting the Fed actions, and after that the direction of the Chinese economy right in 2022 are likely to be the ones realizing the biggest profits on their investments," Ole Hansen, head of commodity strategy at Saxo Bank, said in a Jan. 4 note.
For industrial metals, growth in commodities-hungry China will be key after a pullback in demand in late 2021.
"Following a V-shaped recovery in 2020, China's growth lost momentum since [the third quarter of 2021] due to resurging [COVID-19], summer flooding, unexpected power cuts and property tightening," Credit Suisse analysts wrote in a Jan. 10 research report.
The first half of 2022 will be "tough" for basic materials, but the situation will improve in the second half of the year, according to the Credit Suisse analysts. Infrastructure spending in China will be "the major force to boost economic activities," the analysts wrote, with China targeting 5% growth.
Likewise, J.P. Morgan analysts underscored infrastructure spending as a crucial support for basic materials in China in 2022, pointing to steel and cement as their favored sectors.
"With the government's priority turning to stabilizing economic growth, we expect a rebound in demand post the Chinese New Year holiday in late February ... and the pick-up in demand should trigger another round of catalysts for basic materials companies," the analysts said in a Jan. 6 report.
In the final quarter of 2021, Chinese basic material companies gave up gains made earlier in the year, underperforming ex-China peers, the J.P. Morgan analysts noted.
On precious metals, Hansen highlighted gold, silver and platinum as potential gainers in 2022, given his view on limits to how quickly the U.S. Federal Reserve will raise interest rates.
"We do not believe U.S. real yields can rise to the extent that others are forecasting," Hansen said. "With that in mind, and given prospect for U.S. stocks coming off the boil, we believe that gold, as well as silver and platinum, will offer a positive return in 2022."
Platinum and gold also topped Bernstein Research's list of favored precious metals in 2022, while copper and iron ore were the firm's top picks among base and bulk metals.
"Fixing the automobile supply chain will provide near-term support to [platinum] demand while the hydrogen economy supplies the long-term story," Bernstein analyst Bob Brackett wrote in a Jan. 6 note. "We also like gold for modest price upside but also insurance against [Fed] policy errors."
