The post Brexit landscape remains very much barren in terms of hard facts and certainty, things that have pushed many investors towards defensive, high-yielding non-cyclical equities hoping to hide from any resulting turmoil and ensure positive absolute returns in the case of market declines. And the strategy has paid off handsomely despite markets bouncing back so strongly with many stocks delivering stellar gains of 15-60% since the close on referendum day 23 June.
The usual suspects of beverages, tobacco, healthcare and utilities have of course done well. The star performers, however, are precious metals miners Fresnillo (FRES) and Randgold Resources (RRS) who have benefited from the rush to finite commodities and haven metals gold and silver on the premise that their worth will hold up whatever the weather. In fact, with hopes running high that global central banks are set to open the stimulus taps again, interest rate sensitive metals may have further to run with a new driver on the block, especially if peer action serves to fend off the US Fed from any further rate hikes, effectively taking global monetary policy and accommodation stances to fresh extremes.
Almost three weeks have passed since Brexit and despite an embarrassingly shambolic effort by Westminster things have calmed, with Home Secretary Theresa May taking over from David Cameron as PM this evening. The UK’s FTSE has regained 11-month highs of 6700. Blue-chip stocks are well off their lows. But what’s really interesting is the subtle but steady acceleration in recovery by certain more growth- and risk-oriented equities climbing up the FTSE.
Miners like Anglo American (AAL), Glencore (GLEN), Antofagasta (ANTO) and Rio Tinto (RIO) are starting to mix it up with the aforementioned precious metals miners, healthcare representatives in Shire (SHP), AstraZeneca (AZN) and GlaxoSmithKline (GSK) and the oil majors BP (BP/) and Royal Dutch Shell (RDSb).
The final pair have benefited handsomely from a weaker GBP/USD currency rate (revenues in dollars, costs in pounds, dividends in dollars) helping offset lower oil prices. Furthermore, the beverages, tobaccos and utilities that had been lauding it up are now slipping down the table, up only 10-15% since Brexit versus 20% at their peak. And commodity prices have begun to perk up. Notably global growth proxy copper, which is back testing $5000/tonne.
The performance statistics still show the FTSE’s defensive contingent as the post-Brexit beneficiaries. Our charts, however, hint at waning momentum and some stocks having peaked. Which begs the question, “where will those who are taking profits deploy their capital next?”. With the banks and housebuilders still troubled by Brexit, our best guess is that the momentum seen among the non-UK sensitive miners (sector +20% since Brexit, strong breakouts to 7-11 month highs) will attract even more attention, leading to further share price gains.
The sector already dominates the top five FTSE performers year-to date. Rotation out of defensives may merely extend its recovery from those depressed January lows, when we all thought China was going to collapse and stop buying any commodities and the Saudis were going to pump so much oil we were all going to drown in the stuff. Those investor favourites the miners may be about to have their day in the sun, even if London isn’t on this seasonally wet July afternoon.
This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.