2 big questions investors should ask as Australia reopens

As Australia’s economy gears up to bounce back from recent lockdowns, investors should think carefully about where they put their money.

Wealth Within chief analyst Dale Gillham said that there are two big questions that investors need to ask themselves if they’re looking to take advantage of the post-pandemic economic growth of the mineral sector.

“Given that BHP, RIO and FMG are all effected by the iron ore price, the first question investors need to ask is whether the price of iron ore has stopped falling,” Mr Gillham said, adding that he doesn’t believe it has.

Mr Gillham noted that in the months since China announced it was cutting steel output, Australia’s biggest mining companies have been slammed on the stock market.

2 big questions investors should ask as Australia reopens

“Given this, many investors are asking whether they should be buying the big miners right now,” he said.

While investors like to chase a bargain and a good stock that’s fallen heavily can present a good opportunity to some, Mr Gillham cautioned that this approach to investing can easily backfire.

“Investors tend to buy too early only to find they have caught a falling knife, as they watch the price of a cheap stock continue to fall,” he said.

Mr Gillham said that, even if they have decided to believe that the price of iron ore is at the bottom of its most recent tumble, investors then need to evaluate whether the stock they’re considering buying has hit its lowest point.

“Unfortunately, many investors get this wrong because they look at how far price has fallen compared to a few weeks or months ago to determine if the stock is a bargain,” he said.

While he warned that investors could see the price of iron ore tumble another 20 per cent in the coming weeks and months, Mr Gillham predicted that we have already seen between 80 and 90 per cent of the impact that this has had on the market.

Given that, he predicted that the time to take advantage of these lower prices will most likely be November.

“While investors should start to get excited about the impending opportunity, it is still way too early to be buying these stocks,” Mr Gillham said.

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About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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