Mining stocks take a beating but fundamentals remain good
By Yolanda Torrisi
"The fundamentals are good" – so how come so much turbulence in stock markets around the world?
Uranium, nickel, base and precious metals … all have experienced sharp drops
the past couple of weeks almost plunging to way beyond the comfort zone. So
where did it suddenly come from. The finger is being firmly pointed to the US
mortgage market.
The sub-prime sector, which offers higher-risk loans to
people with a poor credit history has been caught out.
As US interest rates
have increased and the housing bubble has burst, a growing number of sub-prime
borrowers have defaulted on their loans.
Because the lenders have often sold
on the debt, this has led to extensive financial difficulties for a number of
investment funds with heavy exposure to the sector.
The US jitters has spilt
over into the resources sector worldwide with many resource stocks in
Australia and Hong Kong having their value pared back quite significantly.
In Hong Kong last week, resource stocks such as Jiangxi Copper and China
Shenhua Energy dived, while Hong Kong Exchanges and Clearing Ltd posted some
of the worst performances last Friday.
BUT do we need to call the ambulance
and rush to hospital, or will a headache tablet cure the current ill?
While
there has been a sharp drop in base and precious metals prices, the
fundamentals and the longer term picture remain strong, which investors need
to keep in mind … my thinking is that a headache pill will do it for the time
being.
The base metals picture is still good and robust and the fundamentals
haven’t changed. Demand may have come off a bit from the US but overall it's
still all looking sound.
What has changed is the investor sentiment and in
times of uncertainty, investors panic and they forget about the fundamentals,
they forget about the big picture.
Commodities have been performing well,
and while some other sectors have not been performing so well, investors have
been taking profits from their profitable investments, which has led to the
sell down in commodities.
It is important to remember there were two market
corrections last year and another one earlier this year and the market was
driven to new highs recently … will the same happen again? That remains to be
seen, but if the previous experiences are to be repeated, then the answer is a
firm, yes!
In my belief what has been lost in the current market correction
is the giddy speculation on stocks which drove shares to enormous highs. Those
stocks that have good cash flow or expecting to generate cash flow within the
next 6-12 months will ride this storm well.
Remember, China, and India hot on
the heels, have not retreated on their voracious demand for minerals and fuel
– hence the base fundamentals remain good.
Independence Day celebrations
To
all our readers in Indonesia, Singapore, India and Pakistan, The ASIA Miner
team extends its best wishes and continued prosperity to all these countries
which in the past couple of weeks have celebrated their Independence Days –
Singapore - August 9; Pakistan – August 14; India – August 15; Indonesia –
August 17.
Enjoy this week’s electronic news service … and keep us informed
of your company project developments across the Asia Pacific.
Yolanda Torrisi
Managing Editor and Publisher
The ASIA Miner news
