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South Africa, home to the world’s biggest deposits of a number of minerals, has set an annual target of attracting US$900 million ($1.2 billion) of mining exploration expenditure annually by 2025. The target, equivalent to 5% of the annual spend on exploration globally, is expected to kick start a mining industry that, while among the world’s biggest, has stagnated in recent years.

The exploration strategy, made public on April 12 by the Department of Minerals and Energy, aims to take advantage of South Africa’s comparatively advanced infrastructure and mining expertise. It also plans to shrug off the country’s historical dependence on gold to focus instead on metals used in electric vehicles, battery storage and the production of hydrogen.

“With the declining gold resources, the appeal of the South African mining industry lies in the minerals of the future,” the department adds in the document.

South Africa was the world’s big- gest producer of gold for decades but production has slumped as its deposits get deeper and more expensive to access. Still, the country has the world’s biggest deposits of platinum group metals, battery metal vanadium, chrome and manganese.

According to the statement, challenges include poor policy implementation, poor geoscientific data, insufficient electricity generation, frequent strikes and community unrest. Among initiatives to boost exploration, the country aims to improve the data on its mineral deposits and give more technical support to small mining companies.

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While the Department of Minerals and Energy did not say how much exploration is currently carried out in the country, South African news site News24 notes that it accounted for less than 1% of the annual expenditure on searching for minerals.

The document was made public on April 12 but is dated August 2021. Swiss commodities firm Glencore, British listed multinational mining company Anglo American and Anglo-Australian mining giant Rio Tinto Group operate in South Africa. — Bloomberg

Billions are pouring into chipmaker ETFs stung by stock drops

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Investors are flooding into exchange-traded funds (ETFs) focused on semiconductor stocks, wagering the industry will rebound from the supply-chain snags and chip shortage that have dragged the shares lower.

Semiconductor ETFs have seen roughly US$6.8 billion of inflows since the beginning of the year, surpassing the US$5.2 billion for all of 2021 and the US$2.1 billion for the year before, according to data compiled by Bloomberg.

That represents a show of faith that the sector will recover from the supply-chain turmoil caused by the pandemic, which could worsen as China ushers in a new round of lockdowns to contain outbreaks. That troubles have weighed on the ETFs and pushed the Philadelphia Semiconductor Index to a loss of 21% this year, more than three times the drop in the S&P 500.

“The underperformance kind of makes sense given the near-term macro environment,” says Ross Mayfield, an investment-strategy analyst at Baird. But “people believe in the long-term growth story, especially as they’ve come into focus this year with the supply chain shortages.

The two biggest funds by assets, iShares Semiconductor ETF (ticker SOXX) and VanEck Semiconductor ETF (ticker SMH), have both dropped more than 20% this year. But they have seen year-to-date inflows of US$137 million and US$2.5 billion, respectively.

Demand for semiconductors remains sky-high, with industry sales jumping by more than 20% each month for almost a year already. The stock market’s slide has also made valuations more attractive, says Kevin Kelly, the chief executive officer of Kelly ETFs.

“It’s investors positioning for the long term as semiconductors are at the convergence of multiple thematic demand drivers,” he adds, such as electric cars, the metaverse and cryptocurrencies. “If there is a cyclical industry to put new capital to work, semis appear to be an interesting sector to allocate in today’s market.”

To stay ahead of Singapore and the region’s corporate and economic trends, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/section/latest?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Latest Section</a>

While sentiment around the industry remains hopeful, Frank Cappelleri, a trading-desk strategist at Instinet, says the biggest semiconductor ETFs may not see a turnaround in the near term.

“Oftentimes, an inflection point — a turn higher — doesn’t come until sentiment turns sour,” Cappelleri adds. “That may not have to happen now, but continued weakness from here eventually could alter the flow data.” — Bloomberg

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Demand for semiconductors remains sky-high, with industry sales jumping by more than 20% each month for almost a year already (Image credit: Bloomberg)

US inflation quickens to 8.5%, ratcheting up pressure on Fed

US consumer prices rose in March by the most since late 1981, underscoring the painfully high cost of living and reinforcing pressure on the Federal Reserve (Fed) to raise interest rates even more aggressively.

The consumer price index (CPI) increased 8.5% from a year earlier following a 7.9% annual gain in February, Labor Department data showed on April 12. The widely followed inflation gauge rose 1.2% from a month earlier, the biggest gain since 2005.

The figures are “a welcome respite from the sustained heated core increases of late, and fuel costs look to ease in response to the recent pullback in oil prices,” says Sal Guatieri, senior economist at BMO Capital Markets, in a note. “However, food, rent and a few other items look to remain troublesome and act to slow the expected retreat in inflation in the year ahead.”

The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of soaring food and energy prices after Russia’s invasion of Ukraine.

While the Fed has opened the door for a half-percentage point increase in interest rates, inflation isn’t likely to recede to the central bank’s 2% goal anytime soon — especially given the war, Covid-19 lockdowns in China and greater demand for services like travel.

US President Joe Biden has come under fire for failing to rein in prices as Americans pay up for fuel and groceries. Inflation more broadly will complicate Democrats’ efforts to maintain their tight congressional margins in midterm elections later this year.

At the same time, risks that inflation will tip the economy into recession are building. A growing chorus of economists predict that activity will contract either because consumer spending declines in response to higher prices, or the Fed will over-correct in its effort to catch up.

However, the majority still expects the economy to grow. Inflation is projected to stay near 6% by the end of the year, which will keep pressure on Fed Chair Jerome Powell and his colleagues.

The central bank is expected to hike interest rates by a half-point at its next policy meeting in May — and possibly at one or more meetings after that — while moving forward on plans to reduce its balance sheet. — Bloomberg

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AMRO: Growth in Asean, China, Japan and Korea expected to moderate to 4.7% in 2022

The Asean + 3 Macroeconomic Review Office (AMRO) has moderated its 2022 growth forecast for the Asean + 3 nations to 4.7%, from its previous 4.9% estimate. The macroeconomic watchdog — which monitors the economies of Asean, Japan, China and Korea — has also pencilled for the region to grow by 4.6% in 2023.

This will be led by strong perfor- mance by the Asean nations which are expected to grow by 5.1% in 2022 and 5.2% in 2023. The exception to the group is Singapore, which is predicted to see a moderation in its growth to 4.0% in 2022, following a strong rebound last year.

The growth outlook is underpinned by the high vaccination rates in the region, which are believed to mitigate the health risks of Covid-19.

“As we move through 2022, it appears as though the region may finally have gained some ground in its losing battle against the virus, and we can now look forward to a fuller opening-up and a strong economic recovery,” AMRO’s chief economist Khor Hoe Ee notes in a briefing on Apr 12.

However, he adds that the ongoing Russia-Ukraine conflict poses a risk to the Asean + 3 nations, even as its impact to the region’s GDP (gross domestic product) growth is said to be limited in 2022.

Already, the war has triggered higher energy prices as well as disrupted global supply chains, raising global inflation levels while lowering global growth. The combination of these would hurt exports and inevitably the growth of the Asean + 3 nations, AMRO’s report adds.

If all goes well, AMRO projects that the Asean + 3 region’s GDP growth could come in at 5.4% in 2022, and 5.7% next year. This is based on the assumption that the Russia-Ukraine conflict will be resolved in the first half of this year and all the Covid-19-relat- ed measures are removed by the end of the year.

In a more extreme scenario, the Asean +3 region’s GDP growth is expected to be at 3.9% this year and 3.5% in 2023. This assumes that the tensions between Russia and Ukraine could last beyond 2023 and that more virulent strains of Covid-19 could emerge by the end of this year.

Meanwhile, Asean + 3 nations are now confronted with a major challenge: Soaring inflation levels. The sharp rise in inflation in the US has prompted the Federal Reserve (Fed) to begin tightening monetary policy. A sharper-than-expected rate hike by the Fed and a resultant tightening in global financial markets would impact interest rates, capital outflows and financial market volatility in the region, AMRO’s report adds.

Headline inflation in the region is expected to increase to 3.5% this year, following base year effects, the removal of subsidies on energy and some essential products, and supply-side constraints that have been pushing up the costs of raw materials, energy, transportation and food.

In view of the less supportive global policy settings in 2022, policymakers in the region must know how to play a balancing act. This involves avoiding a premature withdrawal of policy support to sustain the recovery, while also facilitating the reallocation of capital and labour to new and expanding sectors, and restoring policy space to prepare for future risks. “Asean+3 policymakers will have to be nimble as they navigate this complex environment, strengthen economic recovery and rebuild policy space,” says Khor. — Amala Balakrishner

Cover image of a mine in South Africa which is rich in deposits such as gold and other precious metals such as platinum: Bloomberg

Briefs: South Africa sets US$900 million annual mineral exploration target

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