Chinese demand will be the key factor influencing the price of resource stocks both in Australia and overseas, regardless of whether specific countries trade with China directly, according to Perpetual.
Many countries are likely to put up the price of the commodities exports in response to China’s firm hold over its currency in the form of new taxes and levies, which will increasingly become a task for investors to manage, according to Perpetual’s global resources portfolio manager James Bruce.
This could create both opportunity and risk, with the potential of higher prices across the board down the track, he said.
Investors will also need to watch this political risk, he said. The likes of Peru, Chile, Kazakhstan, Zambia and the Democratic Republic of Congo have all added various taxes and levies in the past two years, according to Bruce.
Australia’s carbon tax and mineral resource rent tax (MRRT) also represents significant political risk, and Bruce said the market may be underestimating the long-term impact of the MRRT in particular.
There is also concern in the resources market that European contagion could impact China, which consumes half the world’s commodities, he said.
"What gives me confidence in China is the Government has the levers at its disposal to manage the economy. Those levers are many and varied, whereas the levers of governments in some of the Western world countries are broken," he said, referring to low interest rates and higher unemployment in many western states.
"From our point of view, value is what we’re most interested in, and we’re seeing some wonderful opportunities in the market at the moment to buy some high quality stocks," he said.
Value is driven by the extraction process and the access to markets, and that’s what Perpetual looks at; assessing the value of the ore body is, how it is extracted, the cost of the extraction and how efficient the company is in getting the product to market, he said.
