High bling, low dollars lift London shares

<p>  The best performing share on London’s large-cap market will be no surprise to traders who dived into Lonmin in recent months. The chart below […]</p>


The best performing share on London’s large-cap market will be no surprise to traders who dived into Lonmin in recent months.

The chart below shows monthly volume in the name has surged well above the typical levels seen since 2004.





Please click image to enlarge



Holders of Lonmin—the Anglo-South African miner with a storied history and tumultuous recent past—are sitting on a 340% three-month gain.

That would be remarkable even under the best market circumstances and certainly reflects a bounce by western stock indices that took many investors by surprise, considering the troubling start to the year for global shares.

But Lonmin is not the only triple-digit percentage gainer over the last few months.

A quick glance down the list of the FTSE 350’s best shares shows the Top 10 are all miners and oil producers.

Leaving aside Imagination Technologies, which is being propelled by its latest bout of M&A speculation, we have to go another 6 places lower before we find the next non-mineral dependent stock.

(It is emerging markets investment manager Ashmore, so not entirely countertrend.)





 Prices and data as of Wednesday’s close



Bling and dollars

There’s little mystery as to why these shares have roared ahead.

After commodity prices thudded to five-year lows last August, turbo charged by a stock market collapse in China, even the most relative of bounces was likely to be cheered.

And even taking into account near-chronic backwardation—where nearby prices are higher than those further out on the curve—commodity price action has been fairly orderly and even steady in recent months.

The US dollar—in which most resource trade takes place—having its worst quarter for 5-years (as the Dollar Index) was also a key tailwind for commodities.

Thomson Reuters’ Core Commodity Index has risen about 12% since mid-February, and oil prices have been just short of notorious, with US crude and Brent up 55%-60%.

With most of the names in our table trading below net asset value for months, the commodity comeback was almost bound to start a fire, fuelling a string of 2016 highs for the oil and mining biased FTSE 100 this week.

The obvious question is: are gains by diggers and drillers likely to fizzle out soon or run even further?

We attempt to answer that question in part 2 of this article. 



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