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Monday, July 17, 2006

Global Resource Stocks: Favor Oil Versus Mining

By Yaser Anwar, CSC of Equity Investment Ideas

A developing slowdown in the global economy indicates that global oil & gas stocks should outperform mining stocks.

Both global oil & gas and mining stocks have bounced strongly in the past month after the sharp May correction.

Relative to their underlying commodity prices, they have also risen by similar magnitudes since the global equity advance began in March 2003.

However, mining stocks are more geared than oil stocks to the global growth cycle, making them more vulnerable as global growth decelerates.

Moreover, mining stocks are also more volatile, which further undermines their appeal in light of rising overall equity market risks.

Highly optimistic long-term earnings expectations also pose a hurdle for mining stocks.

Source: BCA

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