The ASX has taken a battering on resources stocks overnight, after analysts advised shareholders to batten down the hatches.
Yesterday, Royal Bank of Scotland (RBS) told clients to “sell everything except high quality bonds” and to brace for a “cataclysmic” year in which oil could sink as low as $16 per barrel.
The S&P ASX 200 Resources index closed at a high last week of 2276.30, since then plummeting to 2134.50 at close on Tuesday afternoon.
BHP shares on the ASX fell 46c (3 per cent) during trade yesterday, hitting $15.01 and continuing the trend of new ten-year lows. This morning has seen the price drop again to $14.65 (10:44 EST).
Rio fared slightly better yesterday, but had lost around $3.00 from the $42.02 high on Friday afternoon, a seven per cent loss.
Brent crude fell more than two per cent on the bad news from RBS, down to $US30.76 per barrel, a 20 per cent loss since the start of 2016.
In turn, Santos was hardest hit with an 8.1 per cent loss to $2.95, while Origin Energy dropped 4.7 per cent to $4.05.
Near-defunct iron ore miner Gindalbie Metals, looking to be on the verge voluntary administration on the expectation JV partner Ansteel will no longer prop up Karara Mining, fell over with a 38 per cent loss (0.021c to 0.008c) after a trading halt on Thursday.
However, Gindalbie has not conceded defeat, as it has yet to receive formal notification from Ansteel about news of the funding cut, which came in a staff memo from the CEO of Karara Mining last week.
Not everyone is so convinced by the RBS ‘end of days’ recommendation in terms of, as pointed out by Paradigm Securities chairman Barry Dawes.
Dawes was sceptical about the recommendation, suggesting that the market was nearing the end of its sell off period, and that market reactions were driven more by sentiment than the facts.
"People have had eight years to sell, BHP peaked in 2008, and the fundamentals are not that bad, as far as I can tell," he said.
"Every other time we´ve had one of these happen we´ve seen obvious deterioration in the real economy. But we´ve had record consumption in copper, aluminium, zinc, oil, and just about everything except for steel, but record exports of iron ore… all these things are really robust. LME inventories are not rising. They are still falling.”
Dawes said it seemed that the low sentiment and high sideline cash indicated the market was ready for bullish conditions rather than a crash.
"[The drop in the ASX] it´s just a capitulation phase, if people really were worried the gold stocks would be have been far weaker than they have been, but they haven´t, they´ve been the best performing sector."