June 28th, 2023 | 07:00 CEST
Bank shock and gold trickery: Deutsche Bank, Commerzbank, Globex Mining
Table of contents:
"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Deutsche Bank and Commerzbank: Is trouble looming?
After banks performed well in the first round of this year's European stress tests, the banking supervisory authority is dampening the euphoria and expecting significantly worse results from institutions. What lies behind this? Stress tests are carried out based on the banks' balance sheets of the previous year. In the process, the supervisors run through a realistic base scenario but also a negative scenario. In the first round of the stress tests, everything fit. However, the supervisors are now expressing doubts: the balance sheets looked particularly good last year due to rising interest rates and low provisions for bad loans. In reality, however, this picture is too optimistic.
Representatives of banks reject the supervisors' statements and emphasize that the authorities are merely trying to pressure banks. Bank critics, on the other hand, feel validated in their assumption that banks have always been allowed to manipulate their balance sheets too easily. The prices of German bank shares, such as Commerzbank and Deutsche Bank, have already fallen in the wake of the negative sentiment. In the case of Deutsche Bank, the March low of EUR 9.80 is approaching. A sustained drop below this level could put the share - and likely the entire sector - under pressure. The ongoing fears of recession, coupled with persistent inflation in many currency areas, are also weighing on the business.
Many uncertainties - Commodities help to diversify
In addition, the further development of key interest rates is uncertain. Although the US has initiated an interest rate pause, the ECB will likely follow up with further steps. Given the weak economy - the S&P Purchasing Managers Index for the Eurozone recently held only just above the 50 point mark - there are additional risk factors. This mixture of factors could be a good argument for investors to diversify their portfolios. Commodities, for example, offer an opportunity for this. "Our analysis shows that commodities offer a better hedge than bonds in an inflationary environment and that multi-asset investors should reconsider commodities as a strategic investment in their portfolios. An arbitrary allocation of 10% to commodities could improve the expected return of portfolios with an expected volatility of 10% by about 0.3%," concluded Schroders in late May in an analysis on the topic.
Globex Mining: More than 200 projects for CAD 40 million
In addition to commodity funds or ETFs, investors can invest in individual stocks. The small-cap company Globex Mining combines the opportunities of a second-tier stock with the diversification of funds. The reason: Globex Mining has more than 200 commodity projects in North America in its portfolio. The Company operates some of these projects in joint ventures and receives royalties. But there have also been sales of projects in the past. The partner company Orford Mining only recently announced a drill hole of 10 m holding 3.8 g/t gold. Besides gold, Globex Mining has numerous other commodities in its portfolio, such as copper, palladium, manganese, titanium, iron, molybdenum, lithium, cobalt, rare earths and others.
Given the multitude of projects and operational progress in various areas, the market capitalization of CAD 40.8 million for Globex Mining seems low. In fact, the stock has already traded around 20% higher in 2023. Investment companies like Globex Mining traditionally often have the problem that their projects are only valued by the market at large discounts. For investors with patience, however, this can also be an opportunity: **If Globex Mining manages a spectacular exit, this could positively influence the valuation of the remaining projects from the market's point of view. Investors who want to diversify their portfolio can take a closer look at Globex Mining. Like gold, the share is currently trading at a low. However, this does not detract from the promising medium-term outlook.
While bank shares are facing new headwinds and the economy is also finding it difficult to get going, many commodity shares are also bobbing along in the chart in no man's land. In contrast to the balance sheets of banks, however, the balance sheets of commodity companies hold numerous hidden reserves in the form of potential value premiums in the future. The commodity sector and smaller holding companies like Globex Mining can be exciting portfolio building blocks. Especially when the rally in savings interest rates ends, which there are already initial indications of, commodities could also become more attractive again for private investors.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
For this reason, there is a concrete conflict of interest.
The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.
Apaton Finance GmbH offers editors, agencies and companies the opportunity to publish commentaries, interviews, summaries, news and the like on news.financial. These contents are exclusively for the information of the readers and do not represent any call to action or recommendations, neither explicitly nor implicitly they are to be understood as an assurance of possible price developments. The contents do not replace individual expert investment advice and do not constitute an offer to sell the discussed share(s) or other financial instruments, nor an invitation to buy or sell such.
The content is expressly not a financial analysis, but a journalistic or advertising text. Readers or users who make investment decisions or carry out transactions on the basis of the information provided here do so entirely at their own risk. No contractual relationship is established between Apaton Finance GmbH and its readers or the users of its offers, as our information only refers to the company and not to the investment decision of the reader or user.