Tech plateau a launchpad for resources

Contentious as it may sound, the suggestion ‘oil is the new data’ might contain a truth that should have Western Australians optimistic about the state’s economic future.

Of course, any mention of oil stirs environmental anxiety, so the ‘new data’ comment by one of the world’s leading investment advisers is meant to encompass the whole spectrum of commodities, as a sea-change shifts sentiment away from technology towards physical assets.

Ruchir Sharma, who last month joined New York-based Rockefeller Capital Management after a long career with rival Morgan Stanley, started his new job with a thought-provoking essay on the swing away from profitless technology investments to the opportunities in natural resources.

As well as recommending a strategy for the next decade, which boils down to minimising exposure to once red-hot companies such as Meta (previously known as Facebook), Mr Sharma addressed the changing approach of young people who used to live for the thrill of the latest technology.

The problem for tech enthusiasts is simple: apart from a handful of exceptions, most technology companies fail to deliver promised profits (with even the once-unstoppable Meta’s share price crashing by 35 per cent since the start of the year).

The key to Mr Sharma’s investment theme is that, while tech stocks performed brilliantly over the past 20 years, they are coming to the end of the road as investors dig into their true profit-making potential and struggle to find it.

On the other hand, the prices of physical assets are surging higher, with no better example than copper, also known as ‘Dr Copper’ for its ability to act as a future forecaster.

As Meta has dived, copper has more than doubled over the past two years to currently be trading close to an all-time high.

Other commodities have done better, with lithium the star thanks to demand dramatically overpowering supply, leading to a price of $US60,000 a tonne, up 400 per cent in two years.

Mr Sharma, who built a reputation as an adviser to some of the world’s richest people, sees a lot more in what’s happening than simple tech-versus-commodities comparisons, because he believes young people are maturing and becoming more like their parents.

Rather than living for experiences, there is a newfound interest in acquiring possessions, with the worldwide boom in home prices an example of this shift.

This is good news for commodities-rich, tech-poor countries such as Australia, because as younger generations start to drive demand by acquiring more goods (and fewer services) there is a second force propelling prices: stalled supply.

As Mr Sharma tells it, green politics has made it unfashionable, even unsavoury, to invest in new oilfields, mines or smelters despite the reality of a greener world needing metals such as copper, nickel and aluminium.

“The world is underinvested in commodities and overinvested in technology and the pattern of alternating decade-long cycles between the two is reasserting itself,” Mr Sharma said. “In the 2010s, a popular tagline was that data is the new oil.

Now we are beginning to hear about oil is the new data.”

Ore not

Not all WA commodities will enjoy the next wave of demand, largely because they have entered a period of little or no growth, with iron ore the material most likely to suffer.

A whiff of what’s to come could be seen in the poor December-half reports of Fortescue Metals Group and Mineral Resources.

FMG’s net profit was down 32 per cent as the effects of a lower iron ore price in the six months to December 31 was compounded by a 20 per cent increase in costs.

MinRes was hit harder, with its profit down by 80 per cent. There could be worse to come in the long term because the project known as ‘the Pilbara killer’, the proposed Simandou iron ore mine in Guinea, has moved a step closer.

Rio Tinto chief executive Jakob Stausholm has even suggested that Simandou would grow into a producer of 100 million tonnes of high-grade iron ore a year.

A research note from investment bank JP Morgan said Simandou could have a lower capital intensity for Rio Tinto compared with its Pilbara mines, suggesting better returns there.

The latest news points to Simandou moving ahead with its biggest threat being an ore grade 65 per cent iron, which will drive low-grade mines out of the market, and that includes some in WA.