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Australian miners three-peat

China’s V-shaped economic recovery, global mining operation suspensions resulting from COVID-19 and gold price surge has benefited the Australian resources sector.

China’s V-shaped economic recovery, global mining operation suspensions resulting from COVID-19 and gold price surge has benefited Australian resources sector.

China Demand

Australia’s largest trading partner, China’s V-shaped recovery is in full swing. China reported better than expected production activity for July 2020 as represented by Caixin China Manufacturing PMI index at 52.8 with iron ore imports increasing by 24% YoY, the highest monthly volume since September 2017.

Source: Markit

Iron Ore Supply Concerns

The world’s second largest iron ore producer, Brazil, continues to be plagued by supply concerns resulting from the coronavirus outbreak. Vale SA Brazil’s largest iron ore producer suspended mining operations with 188 workers infected. The South American nation has the second highest number of COVID-19 infections in the world with 14 day daily average number of new cases above 40,000.

Source: European Centre for Disease Prevention and Control (ECDC)

Increased iron ore demand from China coupled with Brazil’s supply concerns has driven the price above $110, a level not seen since August 2019.

Source: Bloomberg

Gold Surge

Gold price has also surged above US$1900 amid negative real interest rates in the US and concerns about the huge size of the US Federal Reserve’s stimulus program, benefiting Australian gold miners.

Source: Bloomberg

One way to access the resources sector is via an ETF.  However most ETFs are dominated by one or two big diversified miners, which is why ‘capping’ may provide a better diversified exposure to the sector.  The MVIS Australia Resources Index caps stocks at 8%. 

VanEck Vectors Australian Resources ETF (MVR) tracks the MVIS Australia Resources Index and is a simple way to gain a diversified exposure to the Australian resources sector. 

Published: 24 August 2020


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