Commodity stock valuations are a concern. Some supply-side tightening and modest improvements in China have led to outsized responses from some resource stocks. In the case of oil, many stocks have run up more on rumour than on any evidence of production cuts. Further improvement in demand could help close the valuation gap, but this may be challenging, given the outlook for modest global growth. A shift by governments from monetary to fiscal policy would help in this respect, and the November 2016 U.S. presidential election result makes this more likely.
Regardless, in the resource sector, we remain focused on a select number of quality, low-cost producers with the financial strength required to endure further volatility and capitalize on opportunities that may surface in their respective industries.