Investors shift away from miners

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The financial year ended Friday on a positive note, thanks to a combination of 'financial restructuring' news from the European summit, end of quarter window dressing and short covering.

Consequently, investors broke the negative shackles of the past month and showed some confidence in the index, even if it was only for the short term.

International markets followed suit with very large gains, including oil moving a massive 9 per cent. This may indicate the markets have been depressed for too long and due for a rally, although moves such as oil look a little too much, too fast.

We will just have to wait and see what comes from the European summit and whether the restructuring is significant enough for the survival of Europe or if it's just further kicking the can down the road.

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As it's the end of financial year, I thought it appropriate to compare some of the major company's stock prices to twelve months ago (see table, right).

There has been a major shift away from the mining sector to defensives and yield. The best performers in the blue chip sector were Telstra and CSL, whereas the mining companies have been by far the worst.

Investors are constantly asking why miners have performed so poorly in a mining boom.

You have to remember the market is forward looking and that cost increases, deleveraging and softer commodity prices are all future headwinds to the mining sector.

It is also interesting to note over the past three years the final quarter of the financial year has performed poorly, with the notion of "sell in May and go away" very evident.

A positive to this type of 'tax sell' activity is that it allows risk tolerant investors to buy stocks at discounted prices coming into or just after June 30 with the view the market will rerate them back to their true value.

More importantly, what is ahead for the next year? As I am not an owner of a reliable crystal ball, I am not one to make grand predictions.

However, if I was forced to take a guess I would have to say that we are in for more of the same sideways trending market with the lows driven by bank and country debt concerns, and the highs from stimulus measures to combat these concerns.

To break from this pattern there will need to be a significant event that surprises the market either way.


_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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