SYDNEY BlackRock Inc (BLK.N), the world's largest money manager, said its expects a swift recovery in demand for commodities in China once Beijing loosens its reins on borrowing.
"As China takes its foot off the brake in the near future, we should see a recovery in demand from the world's largest consumer of commodities, as markets there are pretty tight," BlackRock's investment chief for natural resources Evy Hambro told Reuters.
In China, sentiment is being boosted by expectations that Beijing will begin loosening monetary policy in the fourth quarter as economic growth slows, while hopes are running high that inflation has peaked.
As of March 31, 2011, BlackRock held $3.65 trillion in assets under management, according to its web site. The resources division manages $36 billion of mining stocks and owns 5.7 percent of BHP Billiton's (BHP.AX) (BLT.L) Australian shares and 10.1 percent of its London-listed shares.
Hambro said his top commodities picks were iron ore, coal and copper, with aluminum least favored.
Concerns over some slowing in China's economic growth is contributing to a wide sell-off in commodities markets at a time when producers are spending billions to expand, mostly on forecasts for continuing high demand.
BHP alone is allocating $80 billion by 2015 to dig new mines and expand its business.
Base metals in particular have borne the brunt of investors de-risking portfolios. Bearishness has also permeated the bulk commodities sector, in particular iron ore, down nearly 11 percent so far this week and on track for the steepest weekly decline ever.
Hambro dismissed the price slippage as temporary and said he preferred Rio Tinto stock over BHP because of its greater exposure to iron ore.
He criticized BHP for not renewing a share buy back in August, when the company reported record profits of A$23.6 billion.
He was "reserving judgment" on BHP's takeover of Petrohawk Energy Corp for $12.1 billion in cash earlier this year until he learned more about the deal during an investor briefing next month, but expressed general concern over the cheap price of U.S. gas and the potential for environmental issues.
In Australia, Hambro also manages Global Mining Investments GMI.AX, whose top three holdings are in commodities trader Glencore (GLEN.L), Rio Tinto, and BHP Billiton.
Hambro said he supported China's steps to keep inflation at a bay to better manage economic growth, despite the impact on commodities markets.
"They are trying to ease the rate of growth to reduce the prospects of inflation," he said. "It would be far more worrying if they were just letting their economy escalate out of control."
Hambro declined to comment immediately on the implications of a rescue package formulated for debt-riddled European countries, but noted that much of the world's mine project financing was backed by European banks.
The rescue effort, if successful, could make more funding available for projects, he said.
Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on holdings of Greek government bonds, and also agreed to multiply their rescue fund fourfold.
"Commodities demand has been driven over the last decade by the growth in China, there is no doubt about that," Hambro said.
"Other fast-growing consumers are India and Brazil, he said.
"These aren't quite the scale of China, but are growing quite rapidly," he said.
Longer-term, Hambro predicted Organization for Economic Co-operation and Development (OECD) nations will need to embark on mass reinvestment in roads, bridges and other large infrastructure projects, which should better-distribute global commodity consumption and take pressure off of China alone to keep the sector afloat.
"I'm not sure when this is going to happen, because these countries have to be able to afford it, but it's definitely out there as a potential source of consumption," he said.
(Editing by Ed Davies)