Metal stocks are facing the worst drawdown ever and continued to be in drawdown since the start of 2018. The current drawdown stares at 60%. Never mind the damage is done and currently trading down below the fair value.
The ongoing coronavirus fears and most of the countries going for a lockdown sends the metal index to near to 2016 lows which offers a potential investing odds to accumulate around such extreme fearful zone.
China is the largest consumer and supplier of several commodities, including metals and they are completely out of covid-19 lockdown.
Meanwhile in China, where the pandemic broke out, not a single new death was reported, and the city of Wuhan in Hubei province, where the new virus was first identified, prepared for lockdown measures to be lifted. Probably this could ease some pressure in the short term.
WATCH: Chinese city of Wuhan, where coronavirus pandemic began, lifts lockdown pic.twitter.com/kEw25fVYDL— BNO Newsroom (@BNODesk) April 7, 2020
China is back to business and so the demand for metals as well. And if you ask me what is the fair value of metal index then I prefer to use the running point of control as shown below.
We can use the year 2019 point of control ( 2967 levels) as a fair value estimate as the price completely deviates quickly away from the fair value provide investing odds and if the Chinese situation retains stability then price has the higher odds of mean reversion back towards the fair value estimate. And currently, Metal index are quoting 80% away from the fair value.
What do you think will the metal index ever rebound to the fair value this 2020?