Why resources stocks can't rely on emerging markets

Pendal Group

Pendal Group

Why resources stocks can't rely on emerging markets. Many investors still view emerging markets as the world's growth hubs. In past cycles, BRIC countries showing +5% growth have powered commodity prices. The reality now is that outside of China, some emerging economies are battling with slowing growth, compounded by geopolitical instability and currency volatility. In fact, marginal global growth is more likely to be led by developed markets, with the United States leading the charge. Fundamentally the mining sector remains challenged. Although there have been some recent improvements in base metal prices, resource stock earnings cycles are still generally declining. Most resource-related corporates are in cost-out mode, reducing expenditures on operating expenditure, capital expenditure and exploration. Investors should be wary of oversupply in some bulk commodities markets - particularly coal and in more recent times iron ore - read more from Portfolio Manager Brenton Saunders here (VIEW LINK)


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