Investors still digging resource stocks

Written on the 7 October 2009

A 50 per cent rise in the All Ordinaries over the last six months has investors returning to the market with commodities still the hot ticket.

Joseph Kingsley, an investment adviser at Wilson HTM Investment Group, says solid performances by companies such as Arrow Energy and Icon Energy and large takeovers involving Sunshine Gas and Queensland Gas have built confidence in the sector.

A report by Deloitte valued Sunshine Gas at $2.10 to $2.80 a share and described Queensland Gas’s friendly takeover bid as ‘fair and reasonable’.

“Energy prices have been the major beneficiaries during the last 12 months,” says Kingsley.

“In Queensland there is always a pretty good following of CSG (coal seam gas), while coal stocks are also solid and oil prices have jumped from $US30 a barrel to US$70. Commodity prices have recovered at similar if not better rates than the general market.

“If you took China out of the equation, it would be a very different market obviously, but demand has not let up. China’s GDP forecast is 7-8 per cent and they’re going to need a lot of energy to sustain that level of growth.”

Kingsley says Federal Government stimulus has got a lot of analysts ‘on the hop’.

“Stimulus packages around the world have had desired effect, with a combination of low interest rates also stopping the rot,” he says.

“Australia was still growing when the rest of the world was contracting and we have not been as affected, but the real kicker for the pundits has been the financial boost for infrastructure projects.”

While the property sector continues to deflate and investors look to capitalise following the wind-back of the First Home Owners Grant, Kingsley says shares will continue to outperform real estate.

“While the argument is that you can lose your money in shares and with property you have a block of dirt, in all of the downturns over the last 30 years, shares have out-performed property with an increase of 12 per cent,” he says.

Kingsley says Queensland’s economic recovery will be based on improved valuations, downgraded unemployment, analyst upgrades and increased GDP forecasts.


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