The recent announcement by the Australian Treasurer of plans to introduce a “Resource Super Profits Tax” (RSPT) has led to the longest discussion thread on the Mule Stable yet. A lot of the discussion turned on whether or not share investors can be considered to have lost anything when share prices fall if they have not sold their shares.
Whether or not “unrealised losses” should be considered real losses takes us back to an oft-visited topic: the nature of money. Money has many guises: store of wealth, medium of exchange and, most relevant here, unit of value. Finance has its jargon like any other discipline and when money serves as a unit of value, it is known as a numéraire. Today, however, I will not explore the theory of money any further (although, you can trawl through the Mule Stable discussion to gather some of my thoughts). Instead, I will focus on what has happened to mining stocks.
The chart below shows the performance of the S&P/ASX 300 share price and the Metals and Mining index. While not quite as broad as the All Ordinaries index, the Australian stock market is dominated by large companies and in fact the market capitalization* of the ASX 300 is around 85% of the All Ordinaries, so it does give a very good indication of the performance of the overall market. The Metals and Mining index simply consists of those companies in the ASX 300 that are categorised as being (no surprise) in the business of metals or mining. In order to provide a direct comparison, both of these indices have been scaled to a common base of 100 on 30 April. This was this the Friday before the weekend announcement of the RSPT.
Performance of the Mining Sector following the RSPT announcement*
As the chart clearly shows, the metals and mining index certainly did suffer more than the market as a whole in the first couple of days after the announcement. By the end of Tuesday, resources had fallen 4% more than the ASX 300. Since the RSPT can only serve to decrease not increase profits of resources companies, this fall would seem quite reasonable. Curiously though, this week resources closed the gap once more. In fact, the resources sector has now performed 0.35% better than the overall market!
Of course, one could argue that the sector returns would have been even better over the last two weeks if the tax had never been announced. That may well be the case, but it is hard to argue that the Government had caused a terrible mischief to the superannuation savings of all working Australians when resource have, well, matched the performance of the broader market.
*Data source: Standard and Poor’s
Possibly Related Posts (automatically generated):
- Resource Super Profit Tax Everything Correctly Explained (R.S.P.T.E.C.E.) (25 May 2010)
- RSPT – A Fair Valuation Based on True Value of New and Existing Mines (12 June 2010)
- Junk Charts: Secondary Axes (6 October 2009)
- RSPT RIP – Long Live the MRRT (2 July 2010)
You could test whether the sector would have out-performed even more without the RSPT by comparing its performance against something like the HSBC Global Mining Index (in AU$).
Given the size of the metals and mining sector (BHP > 12% ASX) it might be worth comparing to the ASX300 ex-metals and mining, and as Danny has said, control for the globalmetals and mining beta by considering a global index (ex Aussie Stocks).
Note also that some portion of the devaltuation of metals and mining may have occured prior to the announcement – a resource tax had certainly been discussed for Henry. Finally, The resourse stocks have not fallen to the full extent exected by the analysts – this is probably due to the risk that the tax will not get up in its current form.
Danny and Paddy: both suggestions are good ones. I suspect the best global mining index would be a currency-hedged one rather than just converting the HSBC US$ index to A$ (currency movements would add a lot of extraneous noise I suspect). Given that my access to financial data is not as great as it once was, I would welcome a guest post on the subject….any takers?
Guys, what more are you looking for: Oz mining shares|All Ords, All Ords| Oz mining, Oz mining| Global Mining? It’s all getting a bit Bayesian. The answer to the original question is clear from @sean’s analysis. There is no evidence that the govt mining super tax announcement impacted negatively (a week later) on Oz mining company market value.
James: We’re after Oz All Ords ex Mining, Oz Mining and Global Mining. The All Ords ex Mining is to get a better sense of the spread between Mining & everything else (it won’t change the results in the post, it will change the quantum). The Global Mining is to see whether there was a global effect on Mining (e.g. uptick in commodity prices) that affected the sector here independent of the tax news.
Check this out: Peter Dutton bought BHP shares AFTER Tony Abbott all but administered the last rites to the mining industry:
Liberal MP buys BHP shares ‘despite tax’
Marco: as I understand it, he bought 50 shares, so less than $2,000 worth. Regardless of the prospects for the stock, it seems like a remarkably foolish thing to do politically for that amount of money.
Like Peter Martin said:
“Coalition frontbencher Peter Dutton bought BHP on Tuesday May 4 when it closed $38.59
“Friday it closed $38.64
“He was better share trader than he was a politician.”
Too bad he couldn’t scape the curse of all politicians: he didn’t put more money there. You know, to make it worthwhile.