By Myra P. Saefong
TOKYO (MarketWatch) -- A rally in commodity prices has fueled
gains in Asia's resource stocks, but those stocks have yet to fully
reflect investors' craving to pile money into commodities.
Investor interest in the commodities market has helped lift gold
prices to record levels, silver near a 30-year high, and oil to its
strongest levels in weeks in New York. Copper and tin trade around
two-year peaks in London.
"Investors are focused on the short term, and that is just the
short-term hot money which is driving precious metals and base
metals higher," said Chintan Karnani, chief analyst at Insignia
Consultants in New Delhi.
With commodity prices rising, some resource stocks saw
impressive gains last month, but those gains pale in comparison to
those seen in physical commodity prices.
"Retail investor participation in stock markets is not very high
at the moment," said Karnani. "Once retail investor participation
in [the] stock market increases, commodity-related stocks will
catch up with commodities."
On Friday, commodity-related shares mostly higher in late
morning trading. Shares Inpex Corp. (IPXHF) climbed 1.5% in Tokyo,
as the Nikkei Stock Average added 0.9%. Sumitomo Metal Mining Co.
(5713.TO) fell 0.2%, but for the month of September, its shares
rose nearly 19%, while Inpex has climbed over 3%.
In Sydney, Newcrest Mining Ltd. (NCMGF) rose 0.9%, and BHP
Billiton Ltd. (BHP) was 1.4% higher, with the S&P/ASX 200 up
0.2%. For September, Newcrest gained over 6%, while BHP rose
5%.
Trading was closed for holidays in Shanghai and Hong Kong, but
for the month of September, Aluminum Corp. of China Ltd. (ACH) ,
also known as Chalco, added 18% and Cnooc Ltd. (CEO) was up
12%.
In wider Asian trading, Seoul's Kopsi rose 0.4%, and Taiwan's Taiex was nearly flat.
Retail interest in the stock market will "climb once the third
quarter growth numbers are out and they show that growth will
continue in [the] fourth quarter also," said Karnani.
Pure plays
The real gains so far in commodity-related shares have been seen
in "pure plays," which are more sensitive to risk that has been
abundant in the market, said Chris Weston, an institutional dealer
at IG Markets in Melbourne.
Among those are Sundance Resources Ltd. (SDL.AU), which was up
over 70% for the month of September, Lynas Corp. (LYSDY) , Oz
Minerals Ltd. [s: (OZMLF) and Murchison Metals (MMX.AU).
Some of the pure plays have had "sizeable outperformance versus
underlying commodit[ies] and there is a lot of speculation about
future earnings being priced into these names," said Weston.
Despite that, however, "resource stocks are still a good place
to invest," he said.
When you look around the market at present, the materials space
is "still the sector which is showing the most amount of earnings
growth, and we have seen traders globally re-rate the chance of a
double dip, with traders a month or so ago being far too
pessimistic," Weston said.
With the U.S. Federal Reserve effectively back-stopping markets
and this unwinding of negative pessimism, as well as a positive
stance on Chinese growth, "we have seen good buying in commodities
and resource names," he said.
And "as long as equity markets head higher and risk is still
flowing through markets, this space should continue to outperform,"
he said.
Forward view
Looking further ahead, analysts offered a few words of caution
for investors.
"Commodity-related stocks will catch up soon, but keep a close
watch on China as it takes measures to cool the Chinese housing
sector, and also keep a close watch [for] a possible yuan
revaluation," Karnani said.
Julian Phillips, editor at GoldForecaster.com, said resource
shares are "vulnerable to governmental interference" and corporate
risks.
Given that, he said he would prefer investing in junior
commodity and precious metals stocks "in jurisdictions where the
whole economy is resource dependent and promise to perform well in
hard times."
Despite those cautionary notes, however, he believes that "any
commodities that will be used in Asia's growth are attractive."
For now, "you are watching discerning fund managers select
shares carefully, but commodities with less restraint," he
said.