Australian Investment Blog

Resources are approaching a bad "fantasy" land, where to go?Good morning everyoneOverviewYesterday saw resource stocks get mauled by the market with BHP -5.2%, RIO -4.3% and the energy sector falling 7.4%. As discussed yesterday, the short - medium term outlooks are poor for Iron Ore and Crude Oil with no obvious reason to consider investing in either of these sectors.Many investors and economists have been caught completely off-guard by the severity of the commodities collapse with a Sam Walsh interview 10 months ago currently being quoted often:"Asked by Bloomberg 10 months ago whether Iron Ore could reach $US30/ton he said it was impossible and fantasy land " - Sam Walsh, CEO of RIO Tinto.Turning to the MarketIron Ore is today at US$38.65 / ton, down a whopping 45% for the year - see chart 1. Our overall caution on resources has not changed and when you look at the P/E ratios of BHP (19.1) and RIO (15.6) versus CBA (14.5) they still look expensive in this very uncertain environment.The weakness in the resources sector continues to put enormous pressure on the Australian economy and we believe local interest rates are likely to stay lower for longer. Stocks with sustainable yield may therefore hold up better than the market is thinking next year; eg, the REITS were quite strong yesterday rallying almost 1%.The healthcare sector is clearly a growth sector on the back of an ageing and growing population together with long waiting lists in the public health system. On the 30th September this year only 47% of the total population had private health insurance; a potentially bad portent for the public health system. So, taking a look at Healthscope, a stock Market Matters likes:Healthscope (HSO) $2.48