Is it time to buy the miners?
Most analysts seem to think so, citing BHP and Rio as being back in value territory after the thumping they’ve taken in recent months.
Bell Potter’s Charlie Aitken begs to disagree. In an alarming note to the market this morning, the veteran stock tipper has likened the current fall-out in commodity prices to the “tech wreck” among dotcom stocks at the turn of the century.
Capital market movements right now are not simply short term reallocations, he says. Instead, Aitken sees a structural unwinding of long term US dollar carry trades that have depressed the greenback, boosted commodity prices and kept bond yields artificially low.
Rather than debate the possibility of a recession in Australia, Aitken argues economists should be examining whether or not we are witnessing a “disorderly unwind of the concept of direct investment in physical commodities”.
“Is the entire commodity complex about to unravel?”
Commodities, he argues, are facing a perfect storm of a stronger US dollar, weaker commodity prices, slowing Chinese growth, a shift away from Chinese fixed asset investment, rising finance costs coupled with the supply increase from mine expansions hitting markets in the second half of this year.
Adding to the fundamentals is the weight of sentiment that continues to depress precious and base metals.
Citing Glencore Xstrata as the canary in the coalmine – since its stock has slipped 47% since its merger earlier this year – Aitken suggests that BHP’s outperformance is overdone and unwarranted.
BHP’s American listed securities and its UK stock are trading well below the Australian listed entity.
While that always has been the case, Aitken argues that BHP soon will be a $25 stock.
It’s an arresting argument. Let’s hope he’s wrong.