Barry Dawes, Managing Director of Martin Place Securities, speaks on the Australian Resource Sector and the Economic Recovery:
This week weve seen quite good encouragement from the markets showing us that the recovery that weve expected pretty much looks as if its well underway. The markets are telling us that commodity prices have risen and will go higher and were particular encouraged by the way the gold price in US$ has been strengthening again as we had expected. The A$ has been very strong and that in itself is good confirmation in a big market that the recovery is underway.
The driving force is clearly the international stimulus thats gone through from the US, Europe, from Australia putting money into the system in various ways, and the net effect of this must be to increase investable funds which will really flow into equity and commodity markets.
The gold price does seem to be indicating that we will see prices well over a thousand dollars in the very near future and weve certainly got targets of 1200 -1250 and then 1500. Probably within the next 12 months, and maybe even sooner than that. The big driver, of course, with all this stimulus is the united states where we are seeing their budget deficits of 2 trillion dollars this year and more than a trillion the year after, this means a lot of bonds have to be sold, which means that their bond market is going to see at the long end rates well above 5% and 6%, not just the 4.5% that weve now got. So the American dollar will continue to weaken.
Funds will come out of the bond market, will come out of that cash mountain that is talked about in the united states where 9 or 10 trillion dollars has been sitting in bank deposits and in cash management trusts earning next to no interest. Those funds will have to come out and they will flow into the commodity markets, into resource sector equities and probably also into the general equity market.
We have had quite a good performance out of the US equity market more recently and if we do get that thing testing just over 9000 on the DOW it certainly suggests that that equity market will be firmer for the rest of the year and will probably confound a lot of the bears. There does appear to be a lot of institutional cash on the side lines but people have been uncertain and unwilling to come into market but I think were starting to see those funds coming in and people feeling a lot more comfortable
Again from our point of view in the resource sector were seeing that the leaders are still consolidating after big moves from the lows of late last year but I do think that well see the BHPs and the Woodsides look much stronger as we go through.
But what is of more interest is that the second liners have been performing and a lot of the very small stocks that have been pummelled over the past nine twelve months are now recovering and we are seeing some very very good performances there.
All in all, its an outlook which is self reinforcing and I think that confidence will come into the market and our longer term view that last year was really a correction, and a very savage correction, in a longer term bull market for commodities I think will be confirmed and I am very encouraged by the way were starting to see a lot of market breadth and improvement in market breadth, good participation by people in all areas of the market in the resource sector, particularly the small end.
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5:41Market Outlook May 2011 [Part of 20:20 Investor...by mpsecurities95 views
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