Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Sunday, 11 August 2013

Reuters: China July data dump sends miners soaring +5%

I mentioned in a post the other day how Australia's major banks, while continuing to pay handsome dividends, have seen value eroded by tremendous capital appreciation. And my favoured dollar-exposed industrials have now also been on such a great run that there isn't a whole lot of joy or value to be found there either.

On that basis, I reluctantly turned to the lagging mining sector and picked out Rio Tinto at $55, with a tight stop on that fragile support line at around $52.

Earnings for Rio in the first half had been clobbered by around 18% due to weakening commodity prices - particularly iron ore - leaving a PE ratio of just 11 and a lowly share price trading at just a fraction of its 2008 peaks when it was cruising up above the $150 mark.

The ability of Australia's majors to produce huge volumes has not been in doubt, moreover for Rio it's the volatile nature of the iron ore price which causes jitters. BHP is a more diversified group which softens the impact of individual commodities.

It's not the supply that the market is worried about; it's the level of ongoing demand.

I keep going back to the China July data (having a slow weekend here) from this month's data dump. Here is the summarised version of it:

Source: Business Insider

Industrial production (IP) is smashing it (+9.7% y/y). You'd have to think that a fair chunk of that would be down to property construction.

Fixed asset investment (FAI) is also incredibly strong (+20.1% y/y) which again will have been kicked along by housing starts.

In fact, a look through the detailed data dump also shows strength in retail sales and industrial production all across the board. 

This booming demand is all great news for the miners.

Miners such as Rio Tinto and BHP Billiton enjoy dual listings. Here's Reuters in London from Friday:

"UK-listed miners rose to a two-month high, helping the FTSE 100 index to end stronger on Friday, after factory output data from China boosted the demand outlook for raw materials. The UK mining index, which includes heavyweights such as Rio Tinto and BHP Billiton, climbed 5 percent after China's factory output grew in July at its fastest pace since the start of the year.

"Chinese data acted as a catalyst to mining equities, which have scope to trade a lot higher from where they are now," said Daniel Harris, director and head of dealing at H2O Markets.
Shares in Rio - which according to Morgan Stanley research makes around 46 percent of its revenue in China - were up 5 percent at 3,167 pence, having hit a four-month high, but remain well shy of their record 5,920 set in mid-2008.
China's factory data, which followed recent forecast-beating trade numbers, raised expectations the world's second-biggest economy was coming back on track after more than two years of slumping growth and that metals prices could recover. Prices of copper, aluminium, nickel and zinc rose 1.1 to 3.7 percent.
The UK mining index, which has surged nearly 20 percent in a month, gained for a fifth straight week, helping the blue-chip FTSE 100 index to close 53.71 points, or 0.8 percent, higher at 6,583.39. The FTSE is up 12 percent so far this year.
"The mining sector is one cyclical that has been left behind in the last 12 months on disappointing China data," Robert Parkes, equity strategist at HSBC, said.
"The reaction that we have seen to some recent encouraging numbers...highlights that investors may have got too pessimistic on China and as a result a little bit of good news here is going a long way. We expect that we will not see a hard landing in China. We see the economy stabilising in the second half of this year."
Happy days. Rio has already broken above $60 on the ASX so it will be interesting to see how it fares during the week ahead in Australia.

This all sounds very rosy but don't forget that property sales and credit growth in China have been slowing so although forecast GDP in China might be revised upwards, expectations might begin to dip again as we approach Xmas.
And also remember, we're expecting the anticipation of a taper to monetary stimulus in the US to impact the markets adversely at some point in the not-so-distant future, so keep very close to the market if you're trading.