After the recent days of price volatility, many investment experts and investors have suddenly turned to be very bearish towards commodity markets. Besides, HK and
equity markets have severely underperformed the China equity markets since early February. Despite the pessimism, we are quite positive towards some commodities and relevant listed companies. The reason is very straight forward ------ Be greedy when people around you have become too bearish. US
Global equity markets in general closed lower as some investors have started to take profit from the
equity markets. The DJIA lost 0.56% to 14,537.1 while the UK-based FTSE 100 index slightly fell 0.01% to 6,243.7. German DAX lost 0.39% to 7,473.7. US
We prefer Petro
(857) to CNOOC (883) China
Relatively speaking, we are more positive towards gold compared to industrial commodities such as crude oil after the recent commodity market crunch. The reasons are very simple. Global economy may have chance to face slowdown risk in the year of 2013, thus limiting the demand growth for industry commodities. However, inflation risk caused by excessive money supply (note: QEs in some developed countries and loose monetary policy in
have created the problem of excessive liquidity) should buy gold price from 2-3 year perspective. Besides, risks such as currency war and geopolitical risk in China North Asia (note: caused by the missile incident) may imply higher demand for safe haven assets such as gold. Gold price is around US$1,391 per ounce while NY crude oil is about US$87.2 per barrel. North Korea
In theory, upstream oil energy stocks such as CNOOC (883; HK$13.4) should benefit from potential oil price technical rebound. Nevertheless, company risk associated with the Nexen acquisition may negatively affect the profit level in 2013 and 2014. As such, we prefer Petro
(857; HK$9.31), another state-owned oil energy company that has balanced exposure to upstream and downstream operations. China
At HK$9.31, Petro
trades at FY12 P/E of 11.9x (EPS: HK$0.785), and valuation appears to be affordable after few months of share price correction. The share price was HK$11.06 on China January 31, 2013, and current share price has cumulatively corrected for around 16%. Petro may suit prudent investors who pursue less-risky stock choices. China
Quality gold mining stocks with good speculative value
The speculation game of gold is very straight forward. If gold price is not as bad as most people think of (note: many people have suddenly turned to be bearish recently), the safe haven asset is likely to rebound considerably in the coming quarters.
To leverage the potential speculation return, quality gold mining stocks may be sensible pick. At HK$8.12, Zhaojin Mining trades at FY12 P/E of 9.9x (EPS: HK$0.820) and the stock should be extremely oversold after months of share price weakness. Of course, such speculation game may not suit everybody and exposure of the share should not exceed 5% of total portfolio size.