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The outlook for commodities has “significantly improved” in recent months, according to Scotia Capital analyst Orest Wowkodaw, who thinks the “risk-reward proposition for the equities remains attractive despite the impressive performance post the COVID-19 pandemic collapse in early 2020.”
“Although most of the world continues to battle the COVID-19 pandemic, the recent development of several vaccines and clarity on the governing U.S. administration has significantly improved the outlook (and sentiment) for commodities,” he said. “There is little doubt that the remarkable Chinese economic recovery beginning in Q2/20 rescued most commodity markets from complete disaster last year given the pandemic-induced demand implosion outside of China. Looking ahead, massive coordinated global stimulus will be required for most nations to successfully navigate through and eventually recover from the current pandemic. In our view, this stimulus should serve as a very positive tailwind for commodities particularly given the heightened focus on a ‘green recovery.’ Our base case continues to assume that global commodities demand strongly recovers in the 2021-2022 period supporting an improved pricing environment for most metals. In the medium to long term, we believe that severe under-investment in new capacity in the context of a declining existing production base combined with growing demand from global decarbonization efforts has set the stage for the next commodities super cycle ahead.”