The relative safety of mining services investments has always been illusory
The relative safety of mining services investments has always been illusory. Through much of the recent so-called resource boom, many fund managers opted to get their exposure to the sector through suppliers to the miners rather than the miners themselves. Some managers, not having the technical skills to analyse mining companies properly, felt more comfortable applying analytical tools normally used in valuing industrial companies to the service providers. Some also argued that the services providers were a less risky approach to the sector, playing on sentiment among many investors that the resources sector is unusually volatile. The chart at (VIEW LINK) using data from the Australian Bureau of Statistics, shows changes in services output and mining output over the past four decades. The ABS data belies the argument that the services sector is less volatile than the mainstream miners. Sevices have never has been less volatile.
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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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