As the fourth quarter approaches, the market is still searching for a main theme amid choppy trading, yet cyclical sectors have carved out some structural bright spots during the volatility, with nonferrous metals, agriculture, and coal taking turns to perform, and attention on resource commodities quietly rising.
With the Federal Reserve's rate hike now settled, how should we view the next phase for cyclical sectors? Which specific sub-sectors deserve close attention? Chen Ziyang, fund manager of Great Wall Cycle Optimization, believes cyclical sectors stood out during the recent market pullback thanks to dual support from fundamentals and valuations. Looking ahead, structural opportunities in the sector are worth watching.
Chen Ziyang said that supply for many commodities is highly concentrated, including oil, coal, and some minor metals, with global supply often concentrated in a small number of countries or regions. Against a backdrop of frequent geopolitical conflicts, the risk of supply disruption is intensifying. Therefore, for companies whose resource assets are located domestically and that can effectively avoid geopolitical conflict risk, valuations should perhaps command a certain premium. This is a form of "self-reliance and controllability" in another sense, and from the perspective of strategic security and self-sufficiency, the value of domestic resource commodities has yet to be re-rated.
Regarding the view that nonferrous metals may become the crude oil of a new stage, he pointed out that since 2022 major economies globally have invested trillions of US dollars in capital expenditure in the AI field, and these investments have been transformed into physical AI infrastructure assets such as power grids and data centers. Nonferrous metals play a key role in computing power, storage, interconnection, and power transmission, and are indispensable advanced materials. Therefore, many nonferrous metals and new materials in a sense form the cornerstone of artificial intelligence.
Gold prices have had a winding path this year, and Chen Ziyang believes the interest rate cycle factor has already been priced in fairly fully, with the logic returning to its hedging attribute. In terms of allocation value, he sees two layers of logic supporting gold. First, the rates side is not pessimistic: rate hikes do not mean the Federal Reserve has entered a new hiking cycle. Judging from the drivers of the US economy and inflation and employment, there is no basis for starting a new round of rate hikes, and the follow-up will track the decline in inflation and the sustainability of AI capital expenditure. Second, there is a catalyst on the US Treasury credit side: long-end US Treasury yields have hit new highs, US government interest payments have exceeded defense spending, and market concerns about the sustainability of US Treasuries and the credit of the dollar have intensified. Gold is expected to further reflect the US Treasury credit logic going forward.
As for industrial metals, Chen Ziyang said that although profits are already at a relatively high level, copper supply actually fell rather than rose in the first half, constrained by multiple factors including geopolitical disruptions and a long-term lack of exploration investment, and supply-side incremental growth remains limited. Aluminum, meanwhile, is more subject to policy controls, and the domestic electrolytic aluminum capacity ceiling is currently hard to break, while the uncertainty of overseas capacity replacement is relatively large. For strategic minor metals such as tungsten, tantalum, and tin, he believes that driven by AI investment, they offer relatively good long-term investment opportunities.
The chemicals sector has basically reached the bottom of its capacity cycle, and Chen Ziyang said many sub-sectors will present investment opportunities in the future. At present, the focus is on refining and chemicals, refrigerants, phosphate and potash, as well as the relatively rigid-demand fiber segment. In addition, for sub-sectors such as shipping and coal, he believes they are also worth actively watching.
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