Resources Panic Attack

In a classic share market panic investors are bailing out of resource stocks following further pressure on London-listed commodity house Glencore. Its shares fell further overnight, as analysts fretted over its debt pile, and its share price is now down more than 80% on its 2015 high. Hyperbole is in overdrive as commentators call it the “resources sector Lehman Brothers moment”, apparently blithely unaware that a Glencore failure would be positive for its competitors.

Resources and energy stocks are the worst performers on the Australia bourse, with both sectors shedding around 5% today. Given the sector has shed more than 22% already this year, and competitors with strong balance sheets like BHP are likely to benefit from any Glencore failure, some may see this as an overreaction. The risk for those selling today is that tomorrow’s China official and unofficial PMI data doesn’t confirm their fears. It’s possible anything other than a shocker will produce a resource rally.

Every sector is down today, but volumes remain light and investor commitment at the single stock level is light. This indicates the market is in the hands of the larger, global players, and higher than average futures trading supports that view. Most of the pressure is therefore likely fairly crude proxy commodity/China selling of the broad market.