Outlook for mining services in Australia
US 10 year bond yields touched their lowest level ever this week. As of the time of writing, the 10 year note was yielding 1.39% after touching 1.33% during the week. We are living in extraordinary times. Either the bond market is so precise in that the next two decades will be dominated by low growth and zero inflation, or bonds have run up so hard that they are in bubble territory right now. At 1.39% yield on the most liquid bond instrument in the world, the market is pricing in the former.
But that’s what has us interested.
If any other scenario plays out, even moderate global growth, there may be a sell off in bonds and rise in yields. We have never, ever, been this low.
Falling bonds yields have translated in huge risk intolerance and one of the riskiest parts of the Australian stock market has been mining services. Not only are these businesses cyclical in nature but many of them carried high risk balance sheets at the top of the cycle. They never learn and even if they survive this downturn, boards and management teams will be lured by debt to grow through the next cycle.
But when is the next cycle? That is something we aren’t sure about. What we do know is the mining services stocks are being priced for collapse. Companies that don’t collapse can expect to double or triple their market value in the next one or two. So we’ve started to run the ruler over certain names. Many of the good ones have already moved significantly above their lows. These are very low levels, so rallies are still in the overall context not discouraging from a valuation perspective.
Which mining services stocks will we be recommending? That is something only Invast clients have access to.We’ll be rolling out our recommendations on mining services stocks from today.
If you’re not an Invast client, it might be a good time to get your trading account ready for what is coming. You can self-navigate through our simplified account opening process here.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.