Gold sector has never been cheaper, says resources veteran

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.