Aussie miners to overtake banks

mining banks research affiliates

8 July 2021
| By Oksana Patron |
image
image
expand image

Investors should position their portfolios accordingly to reflect that big and cheap Australian miners are expected to overtake banks, which are expensive on a global basis, in 2021-22, according to Research Affiliates.

Australian financials were priced at a 37% premium to their global competitors, while resource securities were trading at a significant discount, at over 50% and in 2021 the surge in financial companies’ value was driven by very low interest rates and the resulting rise in property prices Australia-wide, the manager said.

“As the property stimulus fades, another sector must take leadership if any further increase in the market is to occur. Resource companies are well positioned to take this lead as news of domestic and global inflation should continue to rattle markets until the end of 2021,” the firm’s director of research for Australia, Mike Aked, said.

“Because our financial companies are expensive on a global basis and our miners are cheap, we would expect that Australian resource companies are much more likely to drive our local market higher over the second half of 2021 to fresh all-time highs over 7,400, possibly rising to as high as 8,000 given the momentum in commodity prices. We would position a portfolio accordingly.”

Aked added that investing in a portfolio of cheap resource names that were positioned well for rising inflation seemed a more robust investment strategy than investing in expensive financials, which would need continued property price increases to justify their price.

In 2021, Australian resource securities lagged the broader share market, up only 13.4% at their most recent peak on 10 May 2021, and prices were falling since. 

In comparison, financial companies surged 23.7% this year to their latest high on 17 June, 2021.

“From here, resource companies should benefit from rising inflation more so than financials because their share prices are leveraged to the price increases of their biggest asset: metal and other resources still in the ground. We are seeing strong gains in commodity prices with constraint supply and the continuation of the global economic recovery pushing up prices. Inflation treats resource companies well, unlike financial assets,” Aked concluded.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

5 hours ago

Interesting. Would be good to know the details of the StrategyOne deal....

4 days 10 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 2 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 4 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

3 days 8 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

2 days 11 hours ago