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Basic Materials: Recent Commodity Rallies Leave Few Opportunities

Posted on 01 July 2016

Optimism continues to reign in the basic materials sector year to date, but investors are overestimating the sustainability of recent commodity price rallies. The basic materials sector remains severely overvalued, with a market-cap weighted price/fair value estimate of 1.26 as of May 31.
The reasons for rallies in steel, iron ore, and gold differ, but we don’t expect any of the price gains to hold. Limited impact from steel trade cases and significant oversupply will bring pain to steelmakers and iron ore miners, respectively, in the second half of 2016. The recent Brexit vote helped extend the 2016 gold rally as interest rate hikes are potentially delayed through the second half of the year……………………………………….Full Article: Source


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