Why bank and resource stocks are down
by Peter Switzer
Of course, most of us look at BHP Billiton and Rio Tinto — both of which fell yesterday — and then form our opinion on how resources are doing on their share price movements.
On Friday 25 June, a day after Julia Gillard usurped Kevin Rudd, BHP fell 85 cents to $38.80 and Rio Tinto dropped $2.13 to $69.60 while Fortescue Metals lost 18 cents to $4.36.
By yesterday, with the new and improved mineral resource rent tax (MRRT) replacing the despised resource super profits tax (RSPT), the share price movements for the above shares have been:
- BHP: $36.98, that’s a drop of $1.82
- Rio: $65.25, which is fall of $4.35
- Fortescue: $4.04 and that’s down 32 cents.
However, Macarthur Coal was up 66 cents to $12.75 over the period in question. Interestingly, 63 cents of this rise came yesterday as Centennial Coal became a takeover target, which pushed up its shares close to 32 per cent to $5.83. This helped the likes of Macarthur Coal.
Bottom line effect
Another plus for coal companies is the fact that coal companies have seen a 70 per cent rise in the price of coal but iron ore prices have also spiked, so why have the likes of BHP been left behind. After all, the MRRT has really had a big impact on the miner’s bottom line.
Analysts have suggested that where the RSPT would have hit BHP’s value by 12 per cent, the MRRT would only shave two to three per cent off. Fortescue Metals has gone from a 20 per cent value destruction to under 10 per cent, while Rio’s value fall will be six to seven per cent compared to 16 per cent under the RSPT regime!
It means that it’s the wider malaise affecting the global economy and global stock markets, especially Wall Street, that are repressing the share prices of our miners.
The Centennial Coal offer shows that a tax threat for our miners has eased and when Wall Street realises it has overreacted to European debt problems and the severity of the US and Chinese economic slowdowns, which I don’t think will be serious, then shares will bounce and our miners will benefit from the replacement of the RSPT by the MRRT.
Our banks are also struggling from the global threats, including the likelihood of tighter banking regulation, which we might find hard not to copy, despite our more secure banking system. Our banks are copping the backwash of doubts over the profitability of US banks and that could not help Macquarie, which is more exposed to the US nowadays.
Nicholas Moore, the boss of Mac Bank, once showed me how the bank’s fortunes closely follow the MSCI World, which is a stock market index of 1500 'world' stocks. This index is down over 10 per cent this year and that has not helped Macquarie and neither did its recent outlook statement, which was pretty downbeat.
The long term
That said, from a long-term perspective our banks look like good value, particularly as they are good dividend payers. Finally, the banks have not been helped by the interest rate rises from the Reserve Bank which has now put the economy into a soft patch affecting both the housing sector and business investment.
As with the miners, the banks look oversold but we will need a big, positive circuit breaker to kick investors into a buying mood. Until that happens, I am buying companies I want to hold for five to ten years.
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Published on: Tuesday, July 06, 2010blog comments powered by Disqus