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The idea of driverless trucks whizzing down the M1 at 100mph like a modern-day nightmare version of Spielberg’s 1970’s classic movie “Duel” moved a step closer last week as the DoT sanctioned an £8m investment by US company Peloton to begin trials next year.

The AA’s strong criticism of the idea and its extolling the virtues of EV technology in its place remains key to understanding the dynamics of the new landscape emerging in the UK transport industry in our view.

The push to phase out combustion in transport is accelerating and like the Internet a decade ago it’s essential for asset allocators and investors to try at least to grasp the widespread knock on effects of this transformational process.

While the high-profile beneficiaries of the move to electric (think cobalt +lithium for batteries) are becoming better understood and the travails of VW’s dieselgate and success of TESLA broadcast into people’s homes, it’s the wider impact that will affect more people’s lives and for our purposes investment portfolios.

Take copper for example. For weeks on the team here, we’ve been pondering the reasons behind the strength in the price. Dr Copper, as it’s so often known, has always been seen as the bellwether metal and 3.8% global PMI growth requires a lot of the stuff. And yet, is it housing in Beijing or Amtrak’s upgrades in Boston that’s causing the strength, (through $3 per lb last week+ a three year high) or burgeoning new uses in apps from EV’s to smartphones?

Doing the work as we have been doing this year on the demand side, the average electric vehicle will use 120lb of copper up from 60lb in a conventional vehicle. Amazingly the average EV will use a staggering 6km of copper wiring while it’s estimated by 2025 copper demand in cars will be 1.7m tons out of global demand of 23m tons.

Zinc and nickel too, are also on the march and, many more hurricanes like this, cotton will be joining them.

Part of the reason is how resilient the Chinese economy has been. The Chinese economy overall continues to do well and the Shanghai Composite hit a new high for the year last week at 3362.

We remain positively inclined towards Chinese equity, Asian income, metals and softs, subordinated corporate debt and loans.

Meanwhile appetite continues unabated for the Chinese as to corporate deals in Europe. Last week alone saw China’s fourth largest automaker GREAT WALL expressing interest in following its compatriot GEELY owner of VOLVO, in acquiring European auto assets with well-placed sources claiming GREAT WALL was buying FIAT sending the Italian company’s shares to a 19 year high.

The power of disruption caused by new technologies in other fields of the economy was forcefully on show last week with three massive profit warnings from the world’s largest advertiser WPP, Europe’s largest electronics retailer DIXONS CARPHONE and the UK’s largest household lender PROVIDENT FINANCIAL.

To most vividly demonstrate the gap between “legacy high street” investments and the new “growth economy” BOOHOO+FEVERTREE are now the same market cap as Britain’s largest owner of shopping malls, INTU, driven down last week to a 33% discount to NAV and DIXONS CARPHONE combined. Think BOOHOO and FEVERTREE have revenues of £500m versus DIXONS’ £8bn and each is on a p/e of 100 versus the retail stalwart’s 5x.

The euphoria over prospects for European growth strikes us as overdone. While Emmanuel Macron’s vast expenditure on make-up (EUR24,000+counting since he was elected) will please shareholders in L’OREAL (rumoured to be bidding for ESTEE LAUDER) his reform programme has run into a storm of protest already and tractor loads of excess apples pears and plums must surely be being ripened for some good old-fashioned French autumn protest.

Also Merkel may not be the shoo-in the bookies expect. While the CDU will probably form the largest party the coalition may look a little strange with a fragmented oppo of greens, socialists and right wing fringe parties.

Certainly, the idea that Michel Barnier is a negotiator of magisterial brilliance while the UK government is peopled by clueless fools may be exaggerated. The pound’s dive to 1.08, a ten year low, makes for interest to foreign investors again. It was 1.50 as recently as 2015. This must be attractive soon to foreign investors.

Strangely and counter intuitively, perfidious Albion sowing confusion in Brussels about its real intentions over the single market and customs union is the last thing Juncker and Co. need right now. Second guessing Europe’s second largest economy and population mass from Brussels is probably just as uncomfortable for them as it is for us.

Jackson Hole was generally uneventful, but saw Janet Yellow defying her moniker and pushing back against the Trump push to deregulate financial services and recreate the big investment banks. We still think US short rates are nudging higher and US 10 year yields and Chinese at 2.3% and 3.8% compared to UK gilt yields of 1% and Italian btps of 1.5% seems a bit crazy to us.

Metals, industrials, materials, chemicals and plastics aerospace and specialty engineering along with new tech like specialist plastics all look to us best value.

Finally, on the dollar…We have been sceptics on dollar and pound the last 18 months and the collapse has been fairly as expected…and yet, the euro is not attractive at these levels in our view and we think Draghi et al will be keen to temper the market’s enthusiasm. We are upping both $+ £ exposure.

Factsheets are on the web site.

Have a good week.


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