Money is flowing into natural resource stocks in Japan and abroad thanks to firm oil and copper prices as well as investors’ lofty expectations for the global economy in 2018.
The Nikkei Stock Average vacillated in a narrow range Friday before closing slightly higher, supported by energy and commodity stocks amid a mix of buying and selling, Nikkei reported.
Sumitomo Metal Mining jumped 5% on Friday, the most of any Nikkei component. Copper’s rise on the international market on Thursday spurred investor hopes for a boost in the mining company’s earnings.
Trading houses Mitsubishi Corp. and Sumitomo Corp. reached roughly 10-year highs on Friday as well. Oil and gas developer Inpex logged a year-to-date high, with other oil and nonferrous metal stocks also snapped up.
Funds are flowing into resource shares worldwide. The MSCI World Energy Index, designed to track natural resource companies in developed markets, hit an 11-month high on Thursday after bottoming out in mid-August.
US oil major Chevron and Anglo-Australian miner BHP Billiton reached two- to three-year highs on Thursday, while U.S. copper miner Freeport-McMoRan has surged 30% this month.
Behind the rise is growing bullishness about the world economy, as well as tailwinds from the recently passed US tax reform. “US gross domestic product in 2018 will get an added 0.3- to 0.4-point boost in growth as the tax cuts push up consumption,” said Tomoaki Shishido, an analyst at Nomura Securities.
China and other emerging countries with heavy exports to the US could also be in line for a boost should the American economy expand, further increasing demand for natural resources.
“Trading houses and related shares will remain solid for the next half year,” predicts Naoki Fujiwara of Shinkin Asset Management.
Many resource shares are undervalued based on investment indicators, giving them room for growth. Investors are adjusting their high-tech-heavy portfolios toward resources, said one Japanese asset manager. But the market may drift back toward high-tech stocks should the industry see robust profit growth in the October-December quarter.
