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Resource sector gains overdone: adviser

In recent weeks we have seen the resource sector of the Australian sharemarket perform outstandingly well.

Led primarily by BHP, the sector has displayed a level of growth that has surprised a number of pundits.

The issue now is whether the run has finished or if there is any more growth to be expected.

Hugh Dougherty is a director of Merrill Lynch and a member of the Merrill Lynch Global Investment Strategy Committee. His view is, therefore, of considerable value on these matters.

Hugh takes the view that the rally has been overdone and that in this particular cycle there is likely to be little or no growth until commodity prices start to rise.

The growth in commodity prices would only be as a result of improvements in world economic growth.

Merrill Lynch is forecasting fairly moderate growth in world economies over the next twelve months.

A growth rate of around 3 to 3.5% is about the limit of their forecasts.

Given that this is the case, it would seem unlikely that we can see the resource boom continue for much longer.

Perhaps it might be best to look at taking some of our profits from the sector and redirecting it to other areas.

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