Alphinity cuts commodities bets, keeps focus on copper and steel
Alphinity has cut its exposure to commodities across its Australian Equity funds, scaling back a sector that had seen strong earnings upgrades earlier in the year. The shift follows a research trip to China and the United Arab Emirates, where portfolio manager Stéphane André assessed shifting demand trends and geopolitical risks.
Selective bets remain on copper and US steel
The funds now hold a more targeted commodities position, focusing on copper and US steel while reducing overall exposure. André noted that while demand for some metals has softened, the US steel sector remains resilient due to strong domestic demand and import restrictions. Companies like BlueScope are benefiting, but Alphinity has trimmed its overweight stance from February 2026, when it had a heavier allocation to the sector.
Conditions have changed since the escalation in the Iran conflict. Rising inflation fears, a stronger US dollar, and weakening demand have raised concerns about earnings growth in commodities. André said the market’s earlier optimism about commodity demand has cooled, particularly as China’s economic slowdown and shifting priorities reshape global trade flows.
Copper stands out as the best-performing base metal, supported by tight supply-demand fundamentals. However, André warned that aluminum supply from the Middle East and Indonesia could shift markets next year, potentially easing a current deficit. For now, copper’s strength is backed by AI-driven demand in the US, though André cautioned that tariffs could influence inventory levels and price stability.
China’s export strength masks domestic struggles
China’s economic outlook remains mixed. While domestic consumer confidence is weak, property prices are declining, and activity remains subdued, the country’s export sector is thriving. The AI supercycle, semiconductors, and manufacturing equipment are driving growth, with strong government and market support across the value chain. André described the shift as a race against the US, with no signs of slowing the push into high-tech industries.
Alphinity’s neutral stance on oil and gas reflects uncertainty over geopolitical risks. While the funds hold a long position in oil refiners, the broader sector’s volatility, driven by conflicts in the Middle East and fluctuating strategic reserves, makes clear predictions difficult. André noted that while the Strait of Hormuz’s oil flows have partially recovered, recent escalations and low reserve levels are keeping risk premiums raised.
UAE insights reveal deeper challenges
The research trip to the UAE highlighted tensions in global energy markets. André met with the Abu Dhabi National Oil Company (ADNOC), which reported that oil and LNG flows through the Strait of Hormuz had returned to 85% of pre-war levels, thanks to agreements with Iran and Saudi Arabia. However, the recent broadening of conflict and low strategic reserves have since pushed Brent crude prices back above $100, increasing uncertainty.
