This article came from: http://www.telegraph.co.uk/
The City loves acronyms. We’ve had BRICS, PIIGS, SPDRs and BASICs – but now we have another to add to the Square Mile’s lexicon. The CARBS.
The CARBS are the major commodity producing countries – Canada, Australia, Russia, Brazil and South Africa – according to a report published last week by Citigroup’s equity strategists. They argue that “CARBS make you strong” and these countries should be considered a distinct asset class in their own right.
Between them the CARBS control commodity assets worth almost $60 trillion (£38.7 trillion) and 29pc of the world’s landmass. They produce between a quarter and a half of most major commodities.
The crux of Citi’s argument is sound. Basically, it’s all about the amount of infrastructure these countries will have to build if they are going to fully exploit the opportunity they have in their commodity reserves. “CARBS are the new carnivores,” Citi argues. “Governments have used the commodity windfall wisely, paying down debt, and building up hard currency reserves of over $1 trillion, and now enjoy significant relative economic strength.”
If commodity prices stay high, the CARBS should be avid buyers of the distressed assets of the West, the strategists believe.
“The CARBS plan to increase commodity exports by 44pc over the coming decade, so we see the best opportunities in providers of infrastructure,” Citi says. “In addition, we favour domestic growth plays in low-penetration markets and the new high-growth commodity stocks.”
Indeed, Citi goes as far as choosing specific shares that are likely to benefit from a CARBS-rich diet, although it accepts that the period of easy returns is over. Interestingly, although they have chosen some oil and gas companies, none of them are traditional miners and range from engineers to wheel makers to commercial banks.
“Much of the performance of both domestics and exporters can be traced back to the huge price increases in commodities and the utilisation of spare capacity,” Citi argued. “We believe these drivers have largely run their course.”
Specific companies that Citi believes will be bulked up by their intake of CARBS include Canada Natural Resources, a large independent oil and gas producer, as well as Canadian engineering giant Fluor.
In Australia, Citi likes Santos, an oil and gas exploration and production company, and drilling group Boart Longyear. Russian picks include bank Sberbank, which writes 31pc of corporate loans in Russia, and Mostotrest, a builder of transport infrastructure.
In Brazil, wheel maker Iochpe and banking group Itau were selected as top picks, with fork-lift truck company Barloworld and engineer Murray Roberts chosen in South Africa.
For the rest of this article, please go to The Telegraph’s website: http://www.telegraph.co.uk/finance/commodities/8918806/Commodities-Now-is-a-good-time-to-load-up-on-CARBS.html