FUND VIEW-Gold, oil stocks still undervalued, says JPMF
reuters.com Wed February 5, 2003 09:25 AM ET By Justine Trueman
LONDON, Feb 5 (Reuters) - Gold prices rocketing to six-year highs have left shares in mining companies gasping to catch up and some hopelessly undervalued, JPMorgan Fleming Asset Management's veteran commodity fund manager said on Wednesday.
"It's only over the past few weeks that people have begun to pay attention to the fact that this area is doing very well," Ian Henderson, manager of the 34.1 million pounds ($56.4 million) JPMF Natural Resources Fund, told Reuters.
"We're so far away from (the end of the run in gold prices). I can find companies on PEs (price to earnings multiples) of four times in the mining sector. As long as I can find these companies hopelessly undervalued, (prices) will keep going up," he said.
The price of gold has leapt 37.5 percent since the end of 2001. Spot gold was quoted at around $380.50 per ounce at 1420 GMT and is up some ten percent since the start of this year, fuelled by fears of an impending U.S.-led war with Iraq and dollar and equity market weakness.
Henderson, who has been investing in commodities for JPMF -- which has about $500 billion of assets under management worldwide -- for the past 10 years, believes gold has broken firmly out of a bear market range and could rise further.
"People had become very set in their opinions and it takes a long time for them to change their minds. That is the plus as far as I'm concerned, that people haven't recognised that this has been a bull market and therein lies the opportunity," he said.
POTENTIAL GAINER
When gold was last around $375 an ounce in 1996, gold stocks were about double their current price on average, he added.
Henderson picked out Cananda's Barrick Gold Corp , the world's number two gold producer, as a potential gainer, given its share price fell 4.3 percent during 2002.
The stock is up about five percent in 2003, well ahead of the S&P/Toronto Stock Exchange Canadian gold index which is flat, up just 0.2 percent over the same period.
So far, Henderson's bullish views on commodity prices have paid off. According to figures from fund tracking firm Lipper, a Reuters company, his JPMF Natural Resources fund is up 18 percent in the last year and 44 percent over three years.
The fund has a 50.5 percent weighting in gold stocks such as Harmony Gold Mining Ltd , Gold Fields Ltd and Randgold Resources Ltd .
It also has 23.5 percent of the fund's holdings in energy companies and said commodity stocks had plenty of room to run.
Henderson said a fall in gold jewellery sales in the last year would not dampen gold prices because of pent-up demand from Asian central banks, particularly China's, and because gold mining companies continue to unwind their hedging positions.
"Eighty percent of gold is used for jewellery and there has been a decline in demand, but it has been more than made up for by the industry buying back gold," he said.
He also thinks investors are underestimating the influence of China on the world economy.
He said China was becoming a significant influence on demand for all commodities from gold for its central bank reserves to oil and base metals. In December China bought five percent of one year's gold production, worth about one billion dollars.
Henderson said both gold and oil reserves were benefiting from increased demand and restricted supply.
Demand for oil is strong from countries like China, which is becoming increasingly motorised, while oil reserves have been affected by strikes in Venezuela.
In January the Venezuela strikes cut oil exports to a fifth of November volumes. Meanwhile there are concerns supplies could be further affected by a war with Iraq.
"I am optimistic about energy especially as we enter this period of uncertainty about Iraq, because non-strategic stockpiles of oil and oil products are below the bottom of their five year band," said Henderson.
"In addition energy sector companies involved in production have seen share prices fall when the oil price has been going up," he added.