Sunday, May 10, 2015

2015-04 Relative Equity Trends

In April, both the materials section and the consumer goods sections saw tremendous gains as both sectors were lifted by higher equity valuations.  The materials sector appreciated 48.63% since a year ago, which was higher than the 9.89% appreciation saw in the consumer goods sector.  This trend would indicate that the economic expansion that began in June, 2014 is continuing.

The big news in April was the fact that PetroChina saw the lowest profit margin in history.  According to Bloomberg, “Net income at China’s biggest oil and gas producer fell 82 percent to 6.15 billion yuan ($991 million) from 34.2 billion yuan a year ago[.]”[1]  Despite that, “Exxon’s capitalization was $352.6 billion through [April 8, 2015], compared with PetroChina’s $352.8 billion as of 1:36 p.m. on Thursday in Shanghai. The Chinese company’s A shares surged about 61 percent the past year, versus Exxon’s 14 percent drop.”[2]  PetroChina is now more valuable than Exxon Mobil.

In the future, we will look back on this event as a prime example of resource mis-allocation and animal spirits driven entirely by reckless central banks.