RIO and BHP to Rise over 20% in 12 Months

Last week, the big Australian miners BHP Billiton (ASX: BHP), RIO Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) all rose strongly on the expectation that demand from China would increase after their central bank said it would reduce the amount of cash banks need to hold in reserve. This means banks in China will have more money to lend, which will stimulate their economy.

The stock price of Fortescue Metals was up 8 per cent while BHP and RIO were both up over 4 per cent. Currently, all three miners are trading very near their all-time high with BHP and RIO still in their latest bull run since 2016. So how long will this bullish run on mining stocks continue and how high will these stocks rise?

How long will Australia’s mining stocks continue to rise?

BHP and RIO tend to run together and outside of the pullback due to COVID last year, the bull run on these two stocks has largely been quite normal. Given this, I would expect to see both stocks continue to rise for at least another 12 months and possibly up to 2 years before they experience another major fall. As far a price is concerned, while both stocks have done well, RIO has not performed as well as BHP since their lows in March of last year and, as such, I believe RIO will outperform BHP in the coming year or so with both stocks likely to make 20 per cent plus gains.

Fortescue Metals tends to run on its own having risen over 600 per cent since September 2018 while BHP only rose around 50 per cent and RIO around 80 per cent over the same timeframe. It is possible Fortescue could continue the trend of outperforming both BHP and RIO over the next year or so, although I don’t believe it will be by anywhere near the same margin, instead I expect a more subdued rise of around 50 per cent. That said, Fortescue does need to break above its previous all-time high to prove it can maintain its current bullish run.

What were the best and worst performing sectors last week?

The best performing sectors last week included Materials up 4.47 per cent followed by Utilities up 4.19 per cent and Consumer Discretionary up 1.72 per cent. The worst performing sectors included Information Technology down 3.05 per cent followed by Energy down 1.20 per cent and Financials down 0.38 percent.

The best performers in the ASX/S&P top 100 stocks included Spark Infrastructure Group up 17.41 per on news of a possible takeover bid. Fortescue Metals was also up 8 per cent followed by Bluescope Steel up 7.48 per cent.

The worst performing stocks included Afterpay down 12.17 per cent followed by Ansell down 3.67 per cent and The Star Entertainment Group down 3.50 per cent. Scentre Group, Challenger, Altium and Stockland were also down over 3 per cent.

What's next for the Australian share market?

While the Materials sector rose strongly last week, the Financials sector did not, which drags on our market as both need to rise if the All Ordinaries Index is to continue to trade up. So while our market achieved a new all-time high last Tuesday by a meagre 1 point, the market is still showing signs of indecision as the nation battles against the pandemic with both Sydney and Melbourne in lockdown again. The weight of having the two largest cities in Australia shut weighs heavily on the economy with business confidence is being battered once again.

Over the last four weeks, the Australian stock market has really only traded sideways despite having made a new all-time high although it did close at its highest level ever last week. Right now, there are no strong signs that the market sentiment is bullish although we are not really seeing any signs that it is overly bearish. What we do know is that uncertainty and indecision is reigning and I suspect this will persist with the pandemic continuing and the potential for more lockdowns.

It is very hard for businesses to operate or indeed plan for growth in this current environment with small business bearing the brunt. Given this, it is wise to plan for the worst and hope for the best; therefore, I encourage investors to prepare for the All Ordinaries Index to fall away but hope it does the opposite.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.