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Golden Minerals is a junior silver producer with a strong growth profile, listed on both the NYSE Amex and TSX.
Message: JPM Recommends Gold
Considering you do not get much more anti-gold than JPM, it is difficult to judge their star trader's sudden strong recommendation for gold and resource stocks. Has the lion lost its teeth or just changed its diet?
Another nice day for GM - VHF
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Gold sector has never been cheaper, says resources veteran
CityWire
By Drazen Jorgic | 15:04:43 | 11 November 2008
JP Morgan’s star resources manager, Ian Henderson, believes the current global economic slowdown can in fact speed up infrastructure spending. He also says the resource super-cycle isn’t over because emerging world growth remains on course, if somewhat tamed.
Henderson, who manages well in excess of a billion euros for JP Morgan Asset Management, points to the recent Chinese stimulus package worth €459 billion as an example of the strength of the emerging world. He also takes comfort from the fact that China is the driving force of the world’s commodities. ‘I think if anything, the slowdown is accelerating – rather than decelerating – infrastructure spending.’
He adds: ‘The demand story for commodities has softened quite a lot but emerging world is still relatively robust. Chinese growth rate has slowed down but it has been running around current levels for quite some time and given the size of the stimulus measures I don’t expect the Chinese economy to falter.
‘The chance of a deep recession in the emerging world, such as the Asian crisis, are virtually zero in my view, but at the same time you can’t deny the impact of the last year.’
The sheer speed of the turnaround in the fortunes of the resources sector has been surprising, Henderson concedes. However, he is also keen to point out that low valuations offer opportunities and stresses that long-term demand story of the emerging world remains strong.
‘The fact of the matter is that markets have been downgrading resources stocks,' he says. ‘It takes stocks back to the couple of years ago and to a degree it provides an opportunity for the future. The long-term story remains in tact in terms of expansion of the emerging world and the expansion of commodities.’
‘The resources sector is cheap as it’s ever been. Relative valuations of the oil and gas stocks, metals and mining stocks relative to the MSCI World does illustrate what downward re-rating has occurred in the sector. Overall, the sector is cheap as ever to the market.’
Henderson highlights gold as one area that has suffered by recent sell offs and currency fluctuations. However, he notes that gold is unlikely to lose its tag as the safe haven and is an attractive proposition at current valuations.
‘If you compare the value of the gold sector to the gold price, they’ve never been so cheap as they are today and that I find to be a foundation of the forced selling rather than the fundamentals of the companies and that to me is paradoxical. Given the fall in price, I’m pretty optimistic that gold isn’t a bad place to be. The demand for gold ETF funds has been strong.’
‘Platinum industry is also currently under severe and excessive pressure but long term future for the platinum is very favourable.’
Henderson also points to the energy sector – which comprises 32.3% of his portfolio – as another area which has suffered in recent times but isn’t without opportunity. He says low oil prices do not necessarily equate to low profits as other variables come into play, such as tax issues.
‘Despite the fact that oil price has fallen from $140 to under $70 doesn’t necessarily mean that there are no opportunities in the oil space. People must bear in mind that since oil prices go up so to do taxes and it doesn’t necessarily mean profits will go up substantially.
‘There are offsetting factors for a lower oil price. For example, Russian government – who I’m not a fan of – reduced its resources tax. I still think that the energy sector is good value.’
Looking ahead, Henderson says the current volatility will continue into 2009. He bemoans the way hedge funds have destabilised the market but says as these funds suffer redemptions and shrink in size, their impact on the market will diminish. The veteran investor also believes that when the maket bottoms, the upward curve will be extremely steep.
‘My own opinion is that prices will continue to fall for some time as there are fixed redemption dates for hedge funds. As the industry as a whole shrinks from being quite large, that’s going to continue to act as a strong headwind and I think the headwind might be there at the start of 2009’, he predicted.
‘Yet unlike certain hedge fund managers, I will say sorry to investors who’ve had a very torrid time over the last few months…but I believe that the overall situation remains favourable to investors in the medium term basis.’
He concluded that a market bounce could be sudden and steep: ‘I can recall back in the 1970s when the UK market fell around 85%, the turnaround was really sharp and when we see these markets bottom we will turn around quickly.'
In the past ten years Henderson's JPM Natural Resources fund has returned 247% in sterling terms while the FTSE All Share/Oil & Gas index has risen 75%. His performance has plummeted in the past year however; the fund has lost 59% while the index has fallen just 15.7%.
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