Look Forward to More Buying Opportunities in Basic Materials
As second-quarter earnings season starts, we'll be on the lookout for more profit warnings and disappointments on a host of issues.
In contrast to what we reported in our last quarterly outlook, some of the shine has come off the basic materials sector as a whole in the past few months. China has ratcheted up bank-reserve ratios several times in an attempt to hold down inflation rates that are getting too high for comfort. This could hamper the country's heady fixed-asset investment. Supply-chain disruptions related to Japan's natural disaster have hit the manufacturing sector, in particular the automotive industry, an intense user of basic materials. Economists are worrying that commodities-fueled inflation will derail an economic recovery. This summer's end of the second round of quantitative easing could see any speculation-related air let out of commodities markets. And last but not least, the Greek debt crisis has come to a head recently, with Band-Aid solutions increasingly hard to come by and those only likely to delay a day of reckoning.
Elizabeth Collins has a position in the following securities mentioned above: VALE. Find out about Morningstar’s editorial policies.