Equity markets moved sharply higher on Friday, with global stocks surging the most in 3½ years as a number of central banks hinted at expanding stimulus measures. We are not surprised by the moves, as we have stated on several occasions we believe the market sell-off should be viewed as more of a buying opportunity. With one of the worsts starts to a year on record, investor panic has seen markets reach oversold territory in our view. The strong bounce in share markets over the last few days supports this view. Positive market sentiment has been driven by speculation that not only the European Central Bank will act, but that Japan and China may also take steps to calm markets. The Oil price also jumped +9% on Friday, which saw energy stocks experience much needed relief. Our only mining stock our Australian portfolio, BHP, also rallied 7.4% after the share price has been under pressure in recent weeks. We believe the Australian and New Zealand markets should trade significantly higher today, following global moves.
Oil Surges
Brent crude rose +9% back to $32 a barrel on Friday as prices headed for a 13% two-day advance. There has been no specific news flow to drive the rally, and we believe the price moves are more a reflection of how negative market sentiment has been of late, as investor panic has driven the market down to extreme lows. Interestingly, Citigroup are calling for oil to be the ‘trade of the year’, being among forecasters predicting an oil price gain in the second half of the year and stated investors should be looking for the opportunity to get in within the next one to three months. While we do not forecast a strong bounce in oil, we do agree that the oil price will see some stabilisation as excess supply comes out of the market later in the year.
BHP Bounces
Not only did energy stocks have a strong Friday, BHP bounced 7.4% in Aussie trading (to A$15.26) after the share price has been under pressure over recent weeks. We continue to see significant medium term value in BHP shares at current levels and maintain BHP as our only mining holding in our Australian portfolio. At current prices BHP offers a dividend yield of nearly 9%, and while this dividend may not be sustainable over the longer term it indicates to us that BHP shares are cheap at current prices.
We Continue to See the Market Sell-off as Buying Opportunity
has maintained its positive stance on equites through the recent selloff. We have been a vocal our views that we believe the recent sell-off is temporary and rather it is providing savvy investors an opportunity to acquire solid businesses at reasonable prices. We are not alone on this view, with the world’s largest asset manager, BlackRock (which oversees $US4.6 trillion for clients) also holding the same view. Chief executive officer of BlackRock, Laurence D Fink, said the recent stock market decline presents a buying opportunity because markets are poised to gain over the course of the next year." You can't walk away from these movements," Fink, chief executive officer of BlackRock, said Friday in an interview from the World Economic Forum in Davos, "Use these as an opportunity."
Chart of the Moment
It is easy to get caught up in the barrage of negative press the media bombard investors with when markets are bad. However, we believe it is important to remain calm and focus on fundamentals rather than get caught up in the fickle nature of the sensationalist media. Investors need to decipher the facts from fiction for themselves and make rational decisions based on facts. By focusing on the longer term thematics and selecting high quality business that benefit from larger world trends, investor’s performance can continue to improve in both up and down markets. At we take a systematic approach with multi-year themes in mind when selecting from a universe of stocks. By focusing on the longer term we are able to avoid the short term noise and drill down on high value stocks.