BROKERS’ NOTES: Buy COPX, sell US banks

Nick Kunze, senior portfolio manager: Sanlam Private Wealth

Buy: COPX (Copper ETF)

This exchange traded fund gives investors exposure to copper without having to analyse an individual mining share or trying to figure out the nuances of a futures-based strategy. For investors looking to bet on increased demand for a raw material used widely in various applications, COPX is a nice option. Copper prices have surged more than 15% in the past two months to reach $9,419.50/t in early April, near a 15-month high, following mine disruptions that closed refined-copper capacity at Chinese smelters. These smelters contribute more than half the global supply. The red metal’s importance in renewable energy technologies, electric vehicles and infrastructure development makes it indispensable in the global shift towards sustainability. At the current levels of $45, this is an excellent addition to any macro portfolio.

Sell: US banks

Last Friday was the start of the second-quarter US earnings season with the big banks reporting mixed results. JPMorgan Chase, Bank of America, Wells Fargo and Citigroup collectively made $253bn in net interest income for the whole of 2023 — a 19% jump from 2022’s total. But higher interest rates can be a double-edged sword. The flipside is people also want more for their savings. Banks have been able to profit from the higher rate environment by being quick to charge borrowers more on loans but slow to increase what is paid on customers’ deposits. Higher funding costs can be offset by stronger loan growth. But high rates can also stymie demand for loans. The average loan balances at JPMorgan and Wells Fargo both shrank quarter on quarter in Q1 2024. On Friday, the JPMorgan share price had its biggest drop in four years. Expect more disappointment to come. Over the past 12 months, the KBW bank index has gained more than 20%. The sector is a sell.