Terry Campbell, the chairman of Australian Foundation Investment Company, which has large holdings in BHP Billiton and Rio Tinto as well as the major banks, has a reassuring message for investors – he believes the bottom of the commodity price rout is near.
Speaking at an AFIC shareholder event on Wednesday, Mr Campbell said “a lot of the pain” suffered by resources stocks in the last year has been caused by global investors taking a bearish view on China.
These shorter sellers have targeted the Australian market because it is liquid and well ordered.
From the AFR:
“They have a ready supply of scrip, so they can short the market,” he said.
However, the early months of this year, and particularly the last few weeks, have seen commodity prices rise sharply, which has caught many of the shorters out, Mr Campbell said.
“The flipside of that [shorting] though is that if you are short stock you have to buy it back at some stage and I don’t think it has turned out as well as they thought it might.
…”I’d been surprised if it gets any worse.”
If I were one of said bashed up upon shorts I would be doubling down. You tell me, have the shorts or longs done better for the past four years?
None the miner downtrends is even broken yet. And let’s not forget the annihilated juniors.
The market will correct and go back into the $30s this year (and probably the $20 too depending on how quickly Vale’s S11D rolls out) because the current bid is driven by:
- modest Chinese stimulus that can support steel demand for a few quarters at best given it cannot overturn the construction oversupply;
- mill restocking on low inventories;
- serious supply disruption in the Pilbara to the tune of 100mt annualised shipments over the first two months;
- perhaps Brazilian disruption via Samarco as well;
- the Tangshan flower show inventory build, and
- the Twiggy Forrest and Vale show.
It really is an iron ore price perfect storm yet underneath it nothing has changed.
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