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Update: Bottom found

By beled | May 25, 2016

Extract from the March 2016 quarterly report:

It is quite possible that unjustifiably deflationary global monetary policies have been a major force behind the fall in commodity and share prices, particularly since mid-2014. However a central banks-led reversal appears to have now happened with the MSCI All Countries Metals and Mining Index rising 43% in US$ from its low in late January to the end of the quarter.

Not surprisingly, the price recoveries of the shares of the more leveraged global mining companies e.g. Anglo-American PLC and Glencore PLC (+131% and +99% respectively) have been larger in response to the above-mentioned easier monetary policies. Those of companies with much stronger balance sheets e.g. BHP Billiton PLC and Rio Tinto PLC have naturally been less dramatic (+27% and +23% respectively), but these shares fell far less on the way down.

Chart 2: Commodities
Screen Shot 2016-05-25 at 2.38.14 PM

Chart 3: Shares

Screen Shot 2016-05-25 at 2.38.28 PM

The crucial question now of course is whether this bounce is temporary or the start of a recovery trend in riskier assets. For the reasons given in this and recent previous reports we believe the latter, but owing to the volatility of cyclicals it is most likely to emerge as a hesitant recovery with sharp corrections along the way. This environment is well described by the late, legendary investor Sir John Templeton who said (our box-ticking): “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.” We feel current investment strategy should take account of currently fragile sentiment (scepticism) and encompass discipline and patience.

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