When Giants Fall

As September rolled round the market has sprung back into action. Having experienced falls not seen since the global recession the market is slowly making a comeback. However still lagging is those very companies that were said to save Australia from recession. Resource giants like Rio Tinto (ASX:RIO), Woodside Petroleum (ASX:WPL) and BHP (ASX:BHP) continue to struggle in comparison to the glory days.

The once powerhouse RIO (Unfortunately, we could not get stock quote ASX:RIO this time.) rode the resources boom perfectly. Having been a major exporter they grew and developed significant market share in the China/India trade. Now, quite literally a shadow of its former self RIO closed last week at $53.39, a far cry of the 2008 high of $115. While many investors has hoped that a discount off the peak of this company was a buy that could not be passed up the group has struggled to break beyond $65.00 since 2012. The days of 30% growth in China seem over, and India don’t seem to have the same growth agenda, leaving the group little hope of getting back to the heights of 2008.

2008 was a long time ago, the world was yet to really know Justin Bieber, and Tiger Woods won the US open. WPL (Unfortunately, we could not get stock quote ASX:WPL this time.) has since seen a fall from grace that rivals that of the great Tiger Woods, June 2008 saw the group reach a price point in excess of $62. Having not been able to return to those lofty heights WPL closed last week priced $31.10. Similar to the situation above punter have seen a bargain but seem disappointed with the results so far. Despite paying out dividend yields of 8.89% WPL has been unable to gain traction in the market. Struggling with falling commodity prices and a changing economy WPL has more or less plateaued since 2012.

Another giant of industry BHP (Unfortunately, we could not get stock quote ASX:BHP this time.) has registered significant falls, with the timing fairly in sync with the two pillars of industry mentioned above. Having closed last week off at $24.59, 41% down from the peak of 2008, WPL has a slightly different story to those above. In 2011, as Charlie Sheen melted down the group actually reached beyond the price point recorded in 2008. However since has seen a steady decline as demand for their product has contracted. The most recent dividend yield was 6.86% and the reliance on a slowing industry continue to disenfranchise investors.

Hinted above is the underlying message that these statistics are telling. Maybe we can place the blame of the lagging resources sector solely on Justin Bieber. Regardless we all seem to acknowledge that the resource boom as we know it is over, but there is clearly some that hope it can return to modest growth and juicy dividends. But the market, as it stands is making a strong counter argument. The AUD is as low as it has been in a long time. This illustrates that the demand once placed on the currency from resource buyers has subsided.

No doubt that the above currency movements is in part driving the commodity price indexes, which in turn have a major impact on the share prices for the resource sector. Unfortunately for those who mine it the price of Iron Ore is projected to fall once again this week. Metal Bulletin is indicating that the benchmark price will have fallen by 34.7%. The price benchmark is in the midst of a consecutive decline not seen since July this year.

With that said, the giants haven’t fallen per say. They continue to have access to high grade resources which deliver the higher yields. The infrastructure built during the glory days allows them to move their respective commodities better than developing nations in Africa and South America vying for the market. And the expertise and experience built from being the market leaders for over a decade leaves all three in a good position. But the bottom line, being would I buy? I would consider an ETF which tracks the resource sector, and that of course will be the subject of my next post.

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