Rudi's View | 5:17 PM
Mining stocks are back in investors' favour in Australia and fresh strategy updates show exactly that.
In today's edition:
- Mining is back on the menu
- Watch the Aussie Dollar, Says UBS
- Smaller gold exposures
- Citi looks international
- Goldmans' convictions
- Morgan Stanley's convictions
- Ord Minnett's convictions
- Morgans' convictions
By Rudi Filapek-Vandyck, Editor
Share prices are up in the morning --if you're lucky-- but in the afternoon the selling orders arrive.
As calendar year 2025 is gradually approaching its expiry date (less than four weeks are left) such has now become the dominating trend for the Australian share market.
The ASX is noticeably lagging its international peers, making the current lack of direction extra frustrating for local investors.
A perfect storm. That's more or less how I see the first lower, then sideways pattern that has gripped the local share market since mid-October.
It started with portfolio rotation into prior laggards and cyclicals as international investors started broadening their allocations on expectations of a better economic year ahead in 2026.
Soon after that a general anxiety spread quickly around the globe that AI was bubbling up and ready to implode.
And boy, has that brought out a lot of doom and glooming, including references to Dutch tulips, the internet mania, and even comparisons with late 1929.
Next bond yields started to move higher, first inspired by the UK, then by a policy pivot in Japan.
The latter has put the long-lasting JPY carry trade under pressure, no doubt impacting Australian equities as hedge funds and others need to liquidate in order to unwind vulnerable positions.
By now, Australian bond yields are on the rise too and there's a very identifiable, local reason for it: the RBA is done with cutting interest rates. Inflation is too high. The economy is holding up (even though company results are revealing headwinds and disappointments).
Now, increasingly economists are starting to focus on when the next policy pivot --rate hike-- might be on the agenda. Already, the first murmurs are the RBA meeting in February might well be a 'live' event, i.e. to hike or not might be in the balance of probabilities.
Look no further for explanations as to why most share prices are finding it incredibly difficult to rise sustainably. And for those quality and growth stocks that previously could do no wrong, the prospect of higher bond yields is weighing on valuations generally.
And so it is that price charts for most sectors on the ASX are showing a downward sloping pattern. A few seem to be moving sideways recently; staples, healthcare, and utilities.
Only one sector is consistently trending upwards: materials (i.e. mining and metals).
Mining is back on the menu
About a year ago the first predictions about a new multi-year up-cycle for commodities started doing the rounds.
As it turned out, more patience was required but commodities are most definitely back on investors' radar as the end of 2025 is nigh.
With the exception of gold, which has had a wonderful time for quite a while, the sector had remained largely under the pump for a number of years and that, history shows, is usually an ideal breeding ground for the next upswing.
Higher inflation. Expectations for Chinese stimulus. More rate cuts from the Federal Reserve. Better economic prospects. You name it. Combined they all point in the direction of better conditions for commodities and producers.
In Australia, it is notable earnings estimates are on the rise post September and it is predominantly resources driven.
A recent strategy report by Wilsons adds a number of contemporary, less traditional sources of demand:
- Onshoring of supply chains and build-outs of strategic stockpiles by nations worried about vulnerabilities and external dependencies
- Strong growth in data centres and AI infrastructure generally
- Re-armament and renewed defence spending
- The global energy transition
On the back of all of the above combined, Wilsons points out the local mining sector now has the strongest growth prospects out of all sectors on the ASX, while trading on still relatively 'cheap' valuations.
At face value, such a beneficial set-up leaves a lot of room for further significant outperformance, but Wilsons still cautions: it's better to remain selective.
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