It’s been a tough few months on the ASX with the All Ords falling 10% in June. The sell off was across the board and would certainly have been driven partly by tax loss selling into 30 June, especially considering how strong the market had run into December 2021. Having said that, high inflation, increasing interest rates and the possibility of austerity measures in the future would have been strong contributors to the sell off.
Buying has since returned, with the market up 8% since June. Buying has been much more selective. There has been some interest in gold, even though the price has remained steady or declined slightly. Lithium stocks have also returned to favour, although volatility has certainly increased.
In the small cap space, there is still plenty of interest in lithium. Rare earths and platinum group metals are also popular with punters.
Traditional energy assets like oil and gas and thermal coal are also doing well in this market.
As a juxtaposition to traditional energy assets, we are seeing increased activity around renewable energy and any technology/opportunity linked to ESG that could meet mandates or targets set by heavy polluters or hydrocarbon explorers.
Cost increases have been felt across all industries and mining services are no different. Some companies are at record revenue rates but struggling to make a profit due to increasing costs. This might come to bite marginal mining operations in months/years to come if there is a squeezing of revenue and costs.
We think gold will continue to be of interest in the market while the global economy adjusts post covid and government stimulus. Battery metals will also continue to be popular but may follow different patterns (for example, nickel may move more conservatively compared to lithium).