Two Reasons Why the Bankers and Miners Will Continue to Decline in Q4
As the banking and resources sector continues their downward trends into the red with double digit declines in year over year value becoming standard, investors are questioning whether to start buying up these blue chip stocks that are at unprecedented lows. But here are two reasons why those blue chip bankers and miners may give up further ground throughout quarter 4.
1) Low commodity prices and an uncertain Chinese recovery
Low prices for commodities and in particular iron ore are placing a significant strain on the resources sector and specifically miners with a less diversified base such as Fortescue Metals, Atlas Iron, Mount Gibson Iron and to a lesser extent Rio Tinto and BHP Billiton. To worsen this issue an uncertain Chinese recovery will further reduce demand for commodities and hence keep their prices low. All factors that will further hamper the miner’s bottom line and create additional downward pressure on their share price.
2) The restructuring of the banking sector
Former commonwealth bank chief David Murray is leading an inquiry into the financial system that is due for release in November. This inquiry could produce a number of results most of which would spell a continued decrease in the profitability of banking sector and hence decrease the value of the big 4 in particular. Most likely the inquiry will require banks to have increased capital buffers to prevent them from a second GFC. This would reduce the banks capacity to payout large dividends as more capital needs to be set aside to satisfy APRA’s asset requirements. Other measure may include an attempt to place surcharges on banks over a certain capital limit which would hinder the big 4 but provide a substantial growth opportunity for regional banks like Suncorp and Bendigo.
Clearly the Road ahead for Blue Chip stocks in the banking and mining sector is uncertain and heading south. However before making a decision on purchasing these stocks at their low point and hoping for a recovery in 2015 the words of Warren Buffet must be considered “Turnarounds seldom turn”.