Recently, some commentators have begun to murmur that we could be witnessing a final wash-out across the resources sector which could mean the cycle is approaching a long sought after floor and the subsequent end to the commodity bear market.
The view isn't without merit considering the recent slide in share prices across the sector has sent leading miners such as BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) down 19%, 15% and 16% respectively over the past three months. At the same time, the prices of many base commodities look to have stabilised and indeed in Australian dollar terms some are starting to climb.
On the flip side, other market watchers such as economic consultancy AlphaBeta are suggesting that the outlook for Australia's economy is weak with a shift in the Chinese economy from manufacturing to services set to shave 1% off our GDP growth rate as China's demand for commodities declines.
Could both sides be right?
Depending on your time frame, yes, both sides could indeed be right.
At some point the bear market in resources will end and perhaps we are approaching that point – certainly the recent upgrade by global investment bank UBS on Rio Tinto to a buy recommendation would suggest that the broker sees light at the end of the tunnel.
What may turn out to be the final washout of the resource sector arguably has taken the share price of companies such as leading diversified producer BHP Billiton to an attractive level with its value potentially exceeding its current price.
The possible end of a bear market does not mean that the earnings outlook is about to improve dramatically however or that companies couldn't continue to bounce along the bottom for some time, possibly years, to come.
For long term investors who focus on buying leading stocks when they are available at attractive prices now could be the time to consider if BHP Billiton – one of the world's lowest cost producers -has entered buy territory…
