There’s no hiding from the carnage seen in the commodity sector over the last 3 to 4 years. It’s been pretty ugly going since late 2011. That’s 4 to 5 years of asset value erosion.
It began shortly after the post Lehman bounces (2009 to 2010) as QE from US and EU policy players brought easy money to investment banks which in turn delivered cosy 20% to 30% growth rates out of what would have been sluggish bluechips. Instead – these stocks put in almost penny stock like performances with some doubling and trebling.
Meanwhile the risky stocks like commodities were no-go zones for some investment firms. Whether that be because of risk caveats post Lehman’s or via internal policies, the trend for speculating and taking on risk for reward had been reversed. There was no need to bet the farm on a 20% chance of success (cos) drill in deep, deep water – they could simply invest in Sport Direct or Thomas Cook and get the same multibagger growth.
So what’s changed? Well, 2015 ended with POO at near 11 year lows, US rates rising and QE dropped by the US fed reserve months ago. Stateside, ‘things’ are moving back to ‘normal’ but the problem is… EU side or Asia side – things are far from rosy. Mario is still firing off Bazooka’s and each round of QE to the eurozone brings with it a different playing field as it’s no longer a joint effort, it’s all down to the EU and the EU only to sort out their affairs. And they have problems that are not going away anytime soon. Grexit is still very much on the cards and it feels like the market is waiting until the broader world economy is recovered sufficiently to allow the inevitable Greek departure to go ahead. But… with US elections around the corner (nov 16) don’t expect too many shocks before that event unfolds. Historically the stock market mysteriously behaves itself ahead of US elections.
So how’s 2016 looking? Well, if you take the above into account and assume there are no trauma’s across the EU and China, then it’s looking like being a rather boring year with not a great deal of activity. With QE drying up (US only) cheap money is not as cheap as it used to be. Investment banks and banks in general have had a nice cosy period to repair the balances and damage caused by Lehmans in 2008.
But catalysts for growth in the blue chips are few and far beyond. The margins and PE ratio’s are still ok (historically) but there’s just nothing out there that says DOW to 20k or FTSE to 8000. If anything, there are more arguments to see DOW at 15k and FTSE at 5.5k levels.
As for more risky stocks…it’s probably still a wee bit early for the investment banks to get back to their over speculative and risky strategies. This is not good news for commodities but it’s better news than what was in place in 2015. Furthermore, risk taking on commodities at 70% discounted levels to 2015 opening prices – places the sector as the one most likely to recover or bounce in 2016. POO and metal prices will naturally drive interest but there are additional M&A moves that can refocus the market to realistic asset values rather than casino market auto bot algo share prices.
You never know, 2016 could finally see a transition from over bloated bluechips back to beaten up commodities. It might not be until 2017 before the latter begin a proper recovery but with prices on the floor and below Lehman’s crisis levels on many stocks – interest will surely grow. For those sitting on the sidelines… well done! 2015 was certainly the year to Sell in May and not come back at all! But with every bear phase or commodity cycle, comes the opposite or the bullish phase. History proves this.
It wouldn’t surprise me one bit to see many of those sitting on the hands finding it ever increasingly hard to keep those digits away from the buy button.
The results for 2015 are below. A big well done to Charles Stanley Brokers who turned in a very respectable profit of 5.75%. If you exclude the numerous dividend payments, the results would have been higher still. The Independent slipped into the red which is the first dip into negative territory in nearly 3 years for their stock pickers ending 6.8% down. Their impressive 3 year reign comes to an end and perhaps indicates the true underlying trend for the FTSE100 which ended 4.9% down for the year. However, it should be noted that the index also hit an all time high at 7104 on April 27th. If you take that peak, the fall from grace is a more nasty looking 13%.
But compared to the commodity sector performance – that’s nothing! In fact, much of that FTSE100 4.9% fall can be attributed to big oil players like Shell and BP. Glencore’s near 75% tumble has done the real damage. The commodity focussed sharehub hotlist came in at 61% down for 2015 which also accounted for a 100% wipe out on Afren. Using a number of sector bellwhethers – the average decline for 2015 was closer to 70% so looking on the brightside, the sharehub hotlist out performed the broader commodity averages.
A 61% decline is still atrocious but relatively inline with POO’s fall from $90’s to $30’s.
Final results as follows: