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Resource Market: A Race Won by Those With Stamina
Holmes believes there is much to be excited about as central banks around the globe take measures to increase growth, which will lead to higher demand for raw materials.
The shock and excitement from the first capital injection in 2008 has faded, but this stimulus revolution is far from over. We are less than a month from the anniversary of the first stimulus move that kicked off the most recent global easing cycle.
On August 31, 2011, Brazil unexpectedly cut its key lending rate by 50 basis points. Since then, ISI (International Statistic Institute) says that 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia. This is unprecedented.
In June and July there were nearly 70 stimulus moves—the most in a two month period since the world began this massive easing.
The mindset is changing from a reactive approach to a proactive one in the central bank world. However, even with these moves, it still takes several months for the stimulative measures to take effect and work their way through and into the system. It is expected that these proactive measures will increase growth and stave off another global recession.
Investors in resource equities are well aware of the recent disconnect and divergence between gold and gold stocks and oil and oil stocks. Holmes expands on this by noting that in the middle of 2011, oil and oil stocks began separating, with crude continuing to rise while stocks deteriorated. The strikingly similar trend continues to occur between gold and gold stocks.
Enter Cnooc and Petronas
Asia has been willing to pay the proper valuation for oil and the companies which produce it. Cnooc's Potential takeover of Nexen was at a 61% premium to its share price. When Malaysia’s state-owned and natural-gas giant Petronas offered to purchase Canada’s Progress Energy Resources Corp. its shares increased 74 percent— which is a record gain for the company. These types of transactions should be telling the market that oil stocks are undervalued.
Holmes urges investors:
"Unlike the start of an Olympic race, in investing, there isn’t a signal sounded to let you know when to dive off the starting block into the markets. Just make sure your portfolio is poised to participate in the race for resources."