Significant gains over the past few days may cloud judgement over commodity cycle turnaround.
Even though the JSE closed in the red, Tuesday was another good day for resource stocks with many companies boasting significant gains. Kumba Iron Ore was up 8.44%, Assore rose by 9.63%, while the platinum miners Anglo American Platinum and Impala Platinum gaining 7.42% and 7.55% respectively. The gold stocks also performed well, but to a lesser extent. Harmony Gold (4.27%) and AngloGold Ashanti (4.46%), among others, were also in the black.
This was the second run in as many (South African business) days. Kumba also rose by 11% on Friday in response to an increase in iron ore prices. BHP Billiton, though it lost some ground on Tuesday, also climbed by about 3.5% on the day.
So, could this be the beginning of the turnaround in commodity stocks that the industry has so desperately been waiting for? Ryan Wibberley, Investec Asset Management’s head of dealing for emerging and frontier markets, says it’s too early to tell but argues that it could be.
“The majority of general equity portfolios in South Africa, at the moment, are significantly underweight when it comes to resources. That is, they are holding less than the benchmark of those stocks…and these massive funds now start thinking that it is the time to move money from yesterday’s winners, like the Naspers and banking counters, into resources,” says Wibberley
Other reasons for this apparent spike in prices is a sense of anticipation that the Chinese government will again thrust money into the economy to stimulate growth – a move that will improve the fortunes of the commodities sector dramatically and strengthen the US dollar.
“There’s a bit of caution ahead of Wednesday’s decision by the Federal Reserve whether to increase interest rates, while US GDP performance figures for the first quarter will also be released. This, along with the close monitoring of what will happen in China, has created this bull run in commodities,” says Wibberly.
Peter Major describes what is happening as “some kind of dead cat bounce”.
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