It’s understandable that investors are cautious. Mining and resource stocks have continued to back off and the overall TSX and TSX Venture exchanges have been dropping.
Does that mean we should run? Does that mean it’s time to liquidate?
Before we get started, we have to fix something. A few weeks ago we talked about the insurmountable debt the US has taken on and what a trillion dollars really looks like ( _see Beyond Comprehension._) It turns out the link we provided had a slight error. So we’re here to correct it.
Make sure you click the link below – you won’t believe your eyes.
**What Does One Trillion Dollars Look Like? (click here to see)**
There’s no doubt that investors in mining stocks have sold off on worries of a slowing Chinese economy. Even as March copper contracts in New York rose, Friday became the second day of losses in the mining sector after Q4 economic growth data in China defied expectations of a slowdown. This led to raised concerns that officials will need to slow things down to ease inflationary pressures.
But investors shouldn’t jump the gun just yet.
The Chinese are smart. While they claim to tame growth, their ultimate goal is to continue growing. The Chinese have been saying for months that they will slow their progress, yet the numbers tell a different story. There’s a reason Chinese Q4 GDP once again shattered expectations.
So despite what Chinese officials say regarding the data, we should look towards their actions rather than their words.
And their actions are speaking very loud.
Chinese companies were behind more takeover deals in Canada than ever before last year, spending more than $5 billion. This included the largest ever oil sands deal in Canada. That’s a 392% increase over the 2007 peak.
There’s now hardly a well-known oil sands project in Canada that the Chinese don’t have a piece of.
But it’s not just Canadian energy the Chinese want. The list of investments into other sectors around the world have been growing at an exponential rate.
Over the past 5 years, the foreign investments from China into other countries have been staggering. In the past few years, investments into the Energy and Metals sectors have been the largest target of investments by Chinese firms.
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| , but we see this as more of a consolidation rather than a downturn in these sectors.
Right now the markets are overreacting to any slight pullbacks in both commodity prices and mining/resource stocks. But do these pullbacks warrant the selloff seen in many of the resource-based stocks?
We don’t think so. Whether gold is at $1400 or $1200 and silver at $30 or $25, the value of many junior explorers and producers are still intact.
That doesn’t mean the pullbacks have stopped or the selling has subsided. The overreactions are clearly a sign of cautious investors protecting themselves from another 2008 loss.
So take your time and invest wisely based on value and not momentum. Invest with knowledge, not emotions. If you’re going to invest in a sideways market, take advantage of the pull backs by averaging down and sell on the way up. If you’re going to invest in juniors, finding companies with a good capital structure is critical in this market. Remember, you don’t lose or make money until you sell.
Investing is risky, especially in juniors. Please do your own due diligence and conduct your own research.
Until next week,
Ivan Lo
Managing Director
Equedia Weekly
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