Australian miners tipped to spark a new Poseidon bubble
Tom RichardsonMarkets reporter and commentator
Jul 31, 2020 – 3.05pm
Record global monetary stimulus means the Australian resources sector is on the brink of a new fortune-creating super-cycle for investors as commodity prices soar, according to Philip King, one of Australia's best known hedge fund managers.
The chief investment officer of Regal Funds Management speculated that share prices of resources stocks might run so hard that the local market eventually witnesses a repeat of 1970's Poseidon bubble.
"The fiscal stimulus we're now seeing in Australia and most countries around the world is the largest since World War II," Mr King said on Friday.
"World War II preceded a golden period for Australian resource stocks, where mining stocks in Australia went up 20 times over the 20 years to 1970, which culminated in the Poseidon boom."
Philip King said a lot of Regal's exposure is in mid-cap stocks as a lot of the large-cap end of the Australian market lacks earnings growth. Dominic Lorrimer
This past week, gold hit a record high of $US1974.90 an ounce, with iron ore, silver, and copper all shadowing or topping 52-week highs.
Mr King said the broader index might go up 2000 per cent over 20 years, but many stocks could rise by multiples of that and make "many, many fortunes" for investors.
"Even though the Australian gold mining sector has performed well, if the gold price continues to rise that will turbocharge returns in the Australian gold mining sector," he said. "So it's very exciting."
The elephant-in-the-room for now, according to Mr King, is the extent and length of COVID-19-related lockdowns, which impact demand for industrial commodities like iron ore, coal, silver and copper.
Looking ahead, Mr King said the earnings season could be the biggest one-off in history, with investors urged to look through results and focus on the big picture.
"For ten years the market's been pulled in two directions. It's been pulled lower by weak earnings growth and higher by very low and falling interest rates," he said.
"Whether you think a 6 per cent future return on Australian equities is expensive or cheap really depends on what you compare it to.
"Compared to historical levels, it's expensive," he said. "But compared to bond yields and other asset classes' returns on equities, we think [stocks] remain very attractive."
The biggest lesson for equity investors from the past three or four months' chaos is to stay the course, the fund manager said, as over the long term, shares deliver the strongest returns.
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