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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (31834)	4/15/1999 7:52:00 PM
From: goldsnow	Respond to of 117020

Funds dig deep for top resource stocks By Bruce Hextall A worldwide buying spree by international investment funds expecting a rebound in metals demand triggered a sharp recovery in Australia's major resource stocks yesterday. BHP, Rio Tinto, WMC were all keenly sought, but the buying also spilt over into second-tier metal producers such as Pasminco and MIM, adding $3 billion to the value of the All Resources Index. The index finished 42 points or 3.9 per cent up at 1112.7 points, its highest level since July last year. It helped the overall market add 6.3 points to 3094.5, despite a fall in industrial stocks. The strong buying followed a decision by overseas funds that it was time to wade into cyclical stocks because of the brighter economic outlook for some Asian economies. The move suggests that the long drought in the sector may finally be coming to an end. US institutions began the rush for scrip on Wednesday evening, seeking out leading US mining houses, such as Alcoa, before widening their net to include Australian miners. Local brokers started the day with large buy orders for BHP that they found difficult to fill. The renewed interest in the stock has also been fuelled by US enthusiasm for new chief executive Mr Paul Anderson and signs that he was resurrecting the ailing group. BHP ended up 92¢ at $15.55 with nearly 15 million shares changing hands. The stock has added more than $8 billion to its market capitalisation since it bottomed at $10.62 before Christmas on concerns about its earnings prospects. Those prospects still look grim and it is likely that BHP will report a full-year profit of little more than $400 million for 1998-99. That will put the company on a massive multiple of 60 times earnings based on yesterday's closing price, but this was of no concern to the overseas funds which were scrambling to top up their portfolios of resource stocks. "This is not an earnings story," said Merrill Lynch resources analyst Mr Adrian Redlich. "People are looking across the valley at the next peak." He said investors typically started to contemplate an upturn in metal prices at this part of the cycle. "Over the last six months we have been suggesting share prices rallying while earnings are downgraded," he said. Funds manager Mr Warren Staude agreed, saying that there was no single factor behind the sudden switch to cyclical stocks. "There are a lot of funds out there that are very underweight in resources - some even zero weighted. They have to have some [stock] just to reduce the negative bet," he said. "Also, there's a fair bit of herd mentality. The funds have woken up to the fact that things are not getting worse even though earnings have been downgraded." Mr Staude was basking in the fact that GIO was overweight in both BHP and Rio Tinto, which was also keenly sought both locally and in London overnight. In BHP's case, Mr Staude said there was also a little bit of "the Anderson factor", referring to the US funds feeling comfortable about having an American at the head of the company. The former chief operating officer of US-based Duke Energy, Mr Paul Anderson, took over as chief executive officer of BHP at the end of last year, just as the stock was heading for rock-bottom. NRMA Investment Management equities analyst Mr Alan Martin said that while the buying was across the whole of the resources sector, BHP had been helped by coming off a low base. "Last year it was all bad news. Now with Anderson talking to people, every time BHP reports something other than earnings it is positive," Mr Martin said. But, he added, the picture was much wider than that. "While the local funds might be neutral to mildly underweight in resources, a lot of overseas funds have none or are really short." Mr Martin said another set of strong US industrial production data, expected to be released tonight, would help enthusiasm, although commodity prices were unlikely to rise until demand picked up in Japan and Europe. "The US can't do it all on its own. We will also have to see some good data coming out of Japan," he said. Oversupply issues still dominate the metals markets, which means that any increase in demand will take some time to translate into higher prices. In the case of copper, BHP is expected to contribute to a rise in the metal's price by closing its mines in the US south-west. Macquarie Equities analyst Mr Paul Barnes said this would help lessen the gap between supply and demand, helping both BHP and other copper producers. "Until demand picks up, it will be supply driven but there is now some likelihood of that happening," he said. afr.com.au