HardAssetsInvestor

Written by Lara Crigger  |

October 15, 2010

Adrian Day: A Road Map For Resource Investing

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The founder of Adrian Day Asset Management explains why the world is in the midst of a commodity "super cycle," and how investors can profit from it.

 

Adrian Day is one of the true pioneers of global investing. For years, the London native has run a boutique global investing firm (Adrian Day Asset Management) that combines complete independence, a global purview and a long-term value philosophy to bear on the markets.

Day's new book, "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks" (available from Wiley, October), discusses how investors can profit from the global resource boom that will affect all commodities over the next decade or more.

Recently HAI Editor Lara Crigger sat down with Day to discuss the ideas in his new book, including how long the super-cycle will last, when India will take over China's lead and where opportunities for resource investors remain.

 

Crigger: In your new book, "Investing in Resources," you argue we are in the midst of a commodity super-cycle. You're not the first to say this; Jim Rogers and others have been saying as much for years. So why do you say so, and how much longer will this commodity super-cycle last?

Day: Resources, as we all know, tend to be exceptionally cyclical. We go through bull phases and bear phases, depending on how the economy is going, but for commodities, this tends to be exaggerated even more over other markets.

However, we have had very long, very sustained periods of higher prices at various times over the past several hundred years, and they tend to come along whenever we have a major step-up in demand. You always have increases in demand and supply shortages, of course, but the super-cycles that go on for years and years, they tend to be set off by a new source of demand.

That's what's causing this new super-cycle; namely, the new source of demand from China. We all have heard about it, but I'm not sure many people realize just how significant it is. Not how significant it has been. But how significant it will be in the years ahead.

To paraphrase Winston Churchill, I think we're only at the end of a beginning. I don't think we're anywhere near the end of this bull market. I think it could go on at least a decade or more.

Crigger: You specifically point out China there. Is it just China that we should look to for increased resource demand for the future? Or is China just one of many emerging markets, maybe the largest, that will matter in the coming years?

Day: The way I see it, China is not just first among equals. It is far and away the prime mover, both in the past three years, but also in the next few years. It has been far and away the most dominant driver in moving commodity prices.

But having said that, if you look at the other major population centers that are developing and industrializing—India, Indonesia, Brazil—they are quite a ways behind China in terms of that great step-up in demand. The interesting thing—and perhaps the scary thing—is that when China's demand for commodities starts to flatten off in 10, 15 years, then if history is a guide, that will be right around when India will start that major step-up.

When you look at countries that change from rural economies to urban, industrialized economies, they go through similar patterns. Over a long period—perhaps a decade or two—the demand for resources slowly moves up; it might double or triple, but only from very low bases. Then they reach a critical take-off point in per capita income, and the demand for resources explodes almost exponentially.