Buy King Copper
Louis Gavekal is an astute reader of markets from his perch in Hong Kong. One of his most memorable lines is that when China enters the room, profits walk out.
He also has an interesting take on asset classes dividing them into stocks, bonds, and metals. The latter is separated into industrial metals and precious metals. Louis sees gold as the new bonds and a hedge not on inflation but rather on weak currencies and geo-political risk.
We share the conviction that industrial metals are undervalued even after a strong performance over the last year. The West has finally come out of its complacency regarding China’s dominance of this sector as electrification of the grid and AI data centers all point to a sustained supply-demand imbalance.
Miners have been starved of capital for some time and the lead time to develop a new mine can be as long as two decades. All this will restrict supply as the fundamentals on the demand side seem persistent.
In addition, the momentum is strong as metals were the best-performing asset class of 2025, and this is running into the new year.
This has stretched valuations into an uncomfortable territory. However, as we have seen with the U.S. market and mega tech, this can continue for some time.
Finally, as an Asia specialist, Gavekal believes that both the Chinese currency and the Chinese stock market are undervalued. He makes the point that while the U.S. represents about 25% of global GDP and China contributes about 20%, the total market value of U.S. stocks is ten times larger than Chinese stocks. Good point.
This brings me to copper that goes into just about everything that has a connection to electricity. An EV has four times as much copper as a regular car. Copper also goes into charging stations, solar panels, and wind turbines. However, annual demand for copper in clean tech is only about 1 million tons, or just 3% of supply. Goldman thinks this could go up 5X by 2030, with all the other sources of demand, means that copper prices have room to run. Some even predict a price of $6 a pound before the end of next year.
Copper is in a lot more than clean energy tech, but it is interesting that the Iran war is boosting demand. China’s clean tech exports soared in March, and South Korea’s domestic EV sales more than doubled last month year over year. March EV sales also surged in the EU.
This week’s new recommendation gives us exposure to both precious and industrial metals with a focus on copper.
New Recommendation