MARKETS SPECTATOR: Hard to back a winner

After the retirement of Black Caviar, it seems gold's fall, miner cost troubles and increased geopolitical risk have investors hard placed to find any sure bets.

Twenty five wins from 25 starts. No investor can boast of such a record. But for those punters who faithfully backed the great mare, she was, to use a much overused phrase, 'gold', which is more than one can say for the so-called precious metal itself. Its price has fallen almost 30 per cent from record highs. Offshore traded gold stock such as Fresnillo tumbled 7.5 per cent in European trading. That makes the outlook for local gold stocks, well, just a little gloomy.

Australia's miners face an equally gloomy outlook having been at pains this week to point out their good prospects in terms of production and operations. Investors don’t seem impressed. Shares in BHP Billiton and Rio Tinto fell more than 3 per cent in European trading. Ausdrill chief financial officer Jose Martins told Business Spectator that miners are focused on cost cutting and are scaling back their operations. Commodity demand seems muted.

Atlas Iron’s managing director Ken Brinsden disputes this view. He said the media and analysts have got it wrong. Chinese steelmakers show no signs of scaling back their appetite for Australian iron ore. But apart from Asia, it’s hard to see where demand for Australian exports will come from. The UK’s jobless rate is now 7.9 per cent. German car sales declined in the three months to March 31 by 13 per cent.

Even the touted recovery in Wall Street earnings has received a jolt. Bank of America reported earnings per share of 20 cents, less than estimates. Mighty Apple is trading at a 12-month low.

The markets must also account for renewed geopolitical risk in the wake of the Boston bombings. US President Barack Obama has been sent poison in the post. Tensions on the Korean peninsula have yet to ease. Australia is not sending its newly appointed ambassador to Seoul because of the perceived threat of war. Markets are questioning whether the new Chinese leadership can grow the economy sufficiently to satisfy an increasing outspoken population.

Still, the Australian stock and credit markets have never recorded a negative 10-year return since their inception, strategist at asset manager Perpetual Matt Sherwood says. But picking the best 'defensive' stocks in such times is not as easy as placing a bet on Black Caviar. 

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