Email of the day (3)
Comment of the Day

July 23 2012

Commentary by David Fuller

Email of the day (3)

On resources and Chindia:
"In recent months, both you and Eoin have emphasized the merits of large, trans national, consumer orientated companies yielding currently attractive and, for the foreseeable future, sustainable dividends. This makes sense. During the same period, you have been non- committal on resources including precious metals, except that, in the case of precious metals, you remain of the view that the ultimate highs for gold probably have not yet been seen.

"Until the current round of grave uncertainty in financial markets, the prime themes of Fuller Money were the multi decade resource super-cycle and developing, or growth, economies.

"Recently both resource stocks and Chindia have taken heavy hits. My question is this: now that China appears to be realigning its focus to increase domestic consumption and with India likely to remain an unpredictable investor in infrastructure developments, can we still believe in the resource super cycle or may that have topped out in 2008 when prices of stocks such as Rio and BHP peaked?

"I find it quite hard to assess. The slowdown in global economic activity acts as a deterrent to Infrastructure which may prove temporary. On the other hand, China has been busy securing sources of production and stockpiling resources, presumably with the aim of moderating prices and avoiding being held to ransom by the major miners. There is also the question of increased resource nationalism - what impact might that have, if any?

"I seem to remember that BHP (and RIO?) featured fairly high in your top 10 holdings. With an increasing number of analysts suggesting the resource super cycle is over, I wonder how you see it? On balance, I'm inclined to think we may have seen the ultimate highs for the big integrated miners but I'm not so convinced as to be a seller. The usual disease of investment paralysis."

David Fuller's view Thanks for your questions and summaries.

You may recall one of my reoccurring sayings: You and I can only deal with the reality that markets provide. Thus Fullermoney's preference for and emphasis on Autonomies and Dividend Aristocrats over the last year.

I maintain that it is too soon to conclude that the commodity supercycle is over although it was always likely to be interrupted by a synchronised global economic slowdown, such as we continue to experience. Performance among individual commodities will vary considerably, as you know, but I would not be surprised to see widespread rises among industrial resources when the next global economic expansion occurs. We are still waiting for clear technical evidence that precious metals have bottomed and commenced another significant advance. BHP and Rio remain in my personal long-term investment portfolio and my most recent comment on them was last Wednesday. I consider them to be cyclical Autonomies with world-class portfolios.

Many countries would benefit from infrastructure improvement, from India to the USA, but it is easier to undertake these projects when GDP growth is strong. China takes a long-term view and competition for resources remains a driver of the supercycle, in my view. Resource nationalism often flares up when prices for these materials are strong.

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