As fears ease over the global credit markets crisis, the world's top 40 mining and oil stocks clawed back nearly USD 400bn worth of market value in just three days.
Author: Barry Sergeant
Posted: Sunday , 21 Sep 2008
JOHANNESBURG -
By Tuesday last week, the world's top 20 mining and top 20 oil stocks had lost USD 2.2 trillion in market value (capitalisation), from record highs seen over the past 12 months; when the lights went out on stocks exchanges across the Americas on Friday night, close to USD 400bn of that lost value had been clawed back.
The main reason, by a long way, was the sea change in investor sentiment occasioned by the announcement of a plan to start sanitising toxic mortgage bond debt in the US. The fine details are under formulation, but the plan appears to involve as much as USD 700bn worth of US taxpayer money.
The bailout plan follows a devastating week that rocked Wall Street and the world, as investment bank Lehman Brothers failed, followed by the agreed sale of Merrill Lynch & Co, and then a US government funded rescue of ailing insurer AIG. On Friday alone, the stock price of Bank of America, a component of the 30-member Dow Jones Industrial Average, recovered by 23%; AIG, an outgoing member of the Dow, jumped 43%, while Citigroup hopped 24%.
JP Morgan Chase, another member of the Dow, rose 17%, to close near to multi-year highs, highlighting the reality that not all US banks have been left in tatters by the global credit markets crisis. Wells Fargo, another quality name, is trading within sight of its all time record high.
Friday's price recoveries were widespread. News of the US plan started to filter out late on Thursday; on Friday alone, both the Shanghai Composite and the Hang Seng rose by nearly 10%; the Dow Jones finished 3.4% higher, after London had jumped nearly 9%. The top 20 oil majors rallied by an average of 9%, compared to an average rally of 13% for the top 20 mining stocks. Norilsk gained the most, at 30%, followed by a 27% gain for ENRC and a 19% recovery for Xstrata.
While these one-day gains represent widespread relief for any number of investors, the world's top 20 mining stocks remain, on weighted average, 46% below stock price highs. Measured on this basis, PotashCorp ranks as top performer, trading at 26% less than its record highs, followed by Newmont, Anglo American, Barrick and Anglo Platinum.
The 30 components of the Dow are currently capitalised at a total of USD 3.7 trillion, and trade at an average of 36% below highs; the world's top 20 oil stocks reflect numbers of USD 2.2 trillion and 32% below, respectively, while the top 20 mining stocks reflect numbers of USD 880bn, and 46% below, respectively.
There has been significant and growing debate over the extent to which resources stocks are oversold, and general consensus that market valuations are well below intrinsic value, regardless of the kind of methodology is thrown at the exercise. While the very biggest mining stocks currently trade on average just better than half of record levels, the junior mining sector remains in a valuation, and thus liquidity, crisis.
A selection of 44 listed junior platinum stocks shows prices currently trading at 67% below peak levels, on a weighted average basis; for 100 listed junior uranium stocks, the number computes at 70% below; for 112 listed gold developers, 60% below is coughed out as the prevailing number; for silver, 21 and 69% below, respectively; while 59 iron ore developers trade 57% below peaks.
A count of 18 copper stocks exposed to the Democratic Republic of the Congo and Zambia are trading an average of 59% below highs; 17 listed gold stocks exposed to West and central Africa are off by a more modest 48%. Global coal stocks, which have been very well supported, show, for 46 junior and developer coal stocks, an average loss of 45% from peaks.
In the physical dollar commodity markets, benchmark oil prices have fallen by around 30% from peaks seen on 15 July this year; precious metals have fallen by between 60% (palladium) and 15% (gold) from peaks, while base metals are down between 52% (nickel) and 21% (copper). The broad fundamental outlook is neutral, at best, given a slowing global economy. Depending, however, on the details of the US plan, further liquidity could return to general and specific equity markets. |
