The small resources index put in a slightly positive performance last week (up 0.8%) amidst the carnage that was felt across the board elsewhere. However, the strong differences in performances between small cap miners and energy companies show this is not a sector suited for all types of investors. Last week, the shares of Riversdale Mining, Albidon Mining and Sino Gold Mining all gained between 12-18% while those on the other side of the coin including Perilya ((PEM)), Petsec Energy and Tap Oil ((TAP)) lost 19.5% or more.
The strong outperformance of small cap resources stocks, I believe, can partly be explained by the absence of "forced sellers". Banks and other financial institutions across the globe are rewinding the liquidity they have helped create throughout the past years. This is not a coordinated attempt to destabilise financial markets or the global economy, but a natural reflex as their balance sheets have been shot to pieces and they remain under threat. This affects all types of customers, good and bad. There will come a time when "forced sellers" will be replaced by "forced buyers" having to cover their short positions.Tax loss sellers will be also scrambling to get back on board resulting in a sharp reversal. Not a good time to be getting the 'shakes'.
RRS Price at posting:
0.0¢ Sentiment: ST Buy Disclosure: Held
