The Australian sharemarket has failed to fire today in the lead-up to the Reserve Bank's latest move on interest rates. But while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen almost 1%, BHP Billiton Limited (ASX: BHP) has fallen an even heavier 2.1% to $28.57.
Here are four reasons why investors might be selling their BHP shares today.
- Investors may be reacting to a downgrade issued by Deutsche Bank on BHP Billiton's shares. The financial services provider lowered its guidance to "Hold", according to the Fairfax press, which comes as the latest downgrade in a string of recent research reports.
- Iron ore, which is BHP Billiton's most important commodity, did not trade in the latest session and remains at US$61.85 a tonne, according to the Metal Bulletin. However, there is a growing concern amongst analysts and investors that the commodity's recent rally cannot be sustained. Fortescue Metals Group Limited's (ASX: FMG) Andrew Forrest is also believed to be pushing for an iron ore inquiry with the West Australian Parliament which might also be playing on investors' minds.
- Oil is BHP's second most important commodity and as is the case with iron ore, there are fears that the resource could be readying for a decline. Oil prices fell nearly 1% overnight due to a strong US dollar and stubbornly high supplies from OPEC-producing nations. A lower price would impact BHP's margins going forward, thus reducing its overall profitability.
- Notably, BHP's recent spin-off South32 Ltd (ASX: S32) is actually trading 0.9% higher today at $2.18. Although there are mixed opinions about South32 within the market, many investors believe it is the superior investment at today's price levels.
Although BHP's shares have fallen in price recently, it is exposed to a number of strong headwinds that threaten to impact its profits, together with its progressive dividend policy. While it is certainly worthy of a position on your long-term watchlist, investors would be wise to steer clear of the mining behemoth in favour of some of the market's more appealing prospects.
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