Should You Buy BHP Billiton At This Share Price?

What happened to the BHP share price?

BHP Billiton [ASX:BHP] was once one of the safest bets on the Australian market. Long term investors prided themselves for holding a business this size and with such diversification.

Looking back, that perception was false. BHP is a diversified company, but it’s still concentrated in the mining sector. Simply because commodity prices move together, the fact that BHP is diversified throughout different commodities doesn’t really help.

The problem with the mining sector

The trouble with the mining sector is actually commodity deflation. It’s been the problem for several years now. That deflation stemmed from China’s structural challenges, which has been overcapacity at a time of weakening global need.

The western media is all more than China lately. They have helped to spread overly bearish emotions. They’ve successfully scared traders into believing China and emerging markets are collapsing.

First of, the media and the market are completely behind the curve upon China. I was attending strategy conferences in China in as early as 2011-2012, listening to government authorities talking about structural reforms.

The fact that China would slow down would be a well-known fact. I was an economist within the commodity sector in China at the time and commodities were already in deflation.
Nothing you’re hearing now is new knowledge. In fact, it’s are deceptive.

What should you do with BHP shares now?

There is a government-engineered structural slowdown within China. While that is happening, the actual overcapacity situation is slowly becoming digested. Also, we have a demand side problem. This unpleasant adjustment will continue. But I may already see the end from the tunnel.

There is no doubt BHP is at a cyclically low level. That means you will see opportunities in rebounds. It will be an opportunity for short term investors/traders.

For long term traders, the ongoing structural change is painful but we are not far from the bottom. Why? Because the commodity basket will complete its repeating adjustment soon. This can sound contentious, but I visit a slow but certain reflation in commodity prices after the present slump.

Ken Wangdong+
Emerging Market Expert, New Frontier Investor