FAR from expecting a customary Santa rally, investors should be...

FAR from expecting a customary Santa rally, investors should be bracing for the most torrid new year since the global financial crisis.
Having been more than 3 per cent higher at one stage, the local bourse looks to be ending the year around 3 per cent lower and there are few obvious catalysts.
As IG Markets notes, a key buffer against the GFC — strong commodity prices — is sadly absent this time around.
“2015 will be a tough year for the ASX,’’ the firm says.
“Earnings per share growth looks like being severely affected by the downturn in commodities while defensive and bank stocks either look fully valued or will embark on a fiscal streamlining (cost cutting) to drive EPS growth.’’
Some miners are in a parlous state, or will be if the rout continues.
In a fresh report, Bell Potter warns that with the iron price around $US70 a tonne, BC Iron (BCI) and Atlas Iron (AGO) are cashflow negative with break-even costs of $US77/t and $US82/t respectively.
Fortescue Metals (FMG) needs a $US66/t price to service its net debt of $US6.9 billion.
The firm assumes an average price of $US80/t over the next two years, revised from $US90/t.
Sagging copper prices are also making life squeezy for the producers although according to UBS they still have adequate headroom.
The firm estimates an “all in” production cost of $US2.62 a pound for OZ Minerals (OZL), compared with the current spot price around $US2.88/lb.
PanAust (PNA) extracts the stuff for $US2.26/lb and Sandfire Resources (SFR) does it for $US2.12/lb. African producer Tiger Resources (TGS) ostensibly is the highest-cost producer on $US2.73/lb, but remove a slated expansion of its Kipoi mine and the figure drops to $US1.85/lb.
The firm sees value in PanAust and Sandfire, the latter having been sold down because of water problems at its DeGrussa mine.
Of course, any optimism is misplaced if the pundits are wrong and the recovering US economy doesn’t spur demand for the red metal.
Generally speaking, such troughs are meant to be the time to weigh into unloved stocks and sectors. But it all seems too early.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own any of the stocks mentioned.