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.
Frequently Asked Questions about this Article…
Investors are panicking about resource stocks due to the pressure on Glencore, a major commodity house, whose shares have significantly dropped. This has sparked fears reminiscent of a 'resources sector Lehman Brothers moment'.
Glencore's situation has led to a significant drop in resource and energy stocks on the Australian bourse, with both sectors shedding around 5% in a single day.
A Glencore failure could actually be positive for its competitors, especially those with strong balance sheets like BHP, as they might benefit from reduced competition.
Some analysts believe the sell-off might be an overreaction, especially if upcoming China PMI data does not confirm the fears driving the panic.
The market is currently influenced by larger, global players, as indicated by light volumes and higher than average futures trading, suggesting that the pressure is largely due to broad market selling linked to commodities and China.
Yes, if the upcoming China PMI data is not as bad as feared, it could lead to a rally in resource stocks, reversing some of the recent losses.
Resource and energy stocks are the worst performers due to the ongoing panic over Glencore's financial health and its impact on the broader commodity market.
Everyday investors should consider the potential for overreaction in the market and the possibility of a rebound if fears are not confirmed by upcoming economic data from China.
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