There's no doubt that the only place to be in the Australian share market over the past year has been the commodity sector, with the share prices of the likes of BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) all catching fire on the back of rising coal and iron ore prices.
Still some say what goes up must come down and the Fairfax press is reporting that analysts at British-founded bank HSBC are predicting that iron ore prices could bomb in the year ahead.
The HSBC analysts pointing out that rising prices are likely to lead to increased and eventual over-supply of iron ore, which could mean sharp falls in prices while the market balances out. This is not rocket science and you don't need a long memory to remember this time last year when cyclical commodity prices and the miners' shares were at rock bottom as global investors panicked over slowing Chinese demand. The other often cited factor was oversupplied markets that could quite quickly eventuate to send the shares of iron ore miners into a tailspin again.
Notably, the Fortescue Metals Group Limited (ASX: FMG) share price has more than doubled in just one year and looks ripe for some profit taking on the first sign of a reversal in iron ore prices.
On the other hand it's possible to make the case that Fortescue shares are cheap if you expect iron ore prices to hold up thanks to the still strong growth of China that continues on its economic model of centralised investment.
Fortescue is expected to earn around 91 cents per share this financial year, which places it on an estimated earnings multiple of just 7x with a bumper dividend yield.
Evidently investors can expect the Fortescue share price to remain volatile with big gains or losses likely to be posted in 2017.
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