Metal prices recovering, says analyst
19/05/2009 6:44:01 PM
money.ninemsn.com.au
Chinese and United States lead indicators are pointing to an ongoing recovery in metal prices, Credit Suisse analysts say.
In a report on the risks of mining stocks, the analysts say that after a bumpy ride, Australian resources are trading back at long-term trend levels.
"While near term economic news continues to be mixed, our China and US lead indicators point to an ongoing recovery in metal prices," the report said.
The ASX200 Resources index is up 53 per cent from November 2008 lows, but down 34 per cent from its May 2008 highs.
"Our base case forecasts show a muted recovery in metals prices to levels more in line with historical norms," the report said.
"If, as our strategists argue, excess liquidity results in upside surprise to metal prices and a strong economic recovery, then our forecasts will prove to be conservative."
The report said investors had been confused by mixed news, and based on metal spot prices there was an equal chance of sector earnings rising or falling.
With a balanced risk, the analysts recommended investors adopt a strategy to buy in the dips.
"Mining stocks were cheap at the start of the CY09, but the recent rally has seen the argument for holding mining stocks move from value to momentum-based analysis," they said.
Higher metals prices may not lead to a substantially higher Australian dollar though.
The report said because the Australian dollar has moved sharply higher in the past three months against the US dollar it is 15 per cent overvalued on current commodity prices.
"In our most recent scenario run, in which we ran a case of above trend commodity prices, we did not vary our currency estimates.
"Using a 50 per cent pass through, under our above-trend commodity prices (upside case) we would look for the AUD to be around 78 US cents (modestly above current levels)," it said. |
