Event

" We have increased the overweight positions to both RIO and BHP in the recommended portfolio.

Impact

" The strong US manufacturing recovery remains on track. China has slowed but appears likely that the authorities will soon moderate their restrictive policies (the floating of the Renminbi helps also). Europe is now at least trying to deal with its problems. All of this suggests that the macro environment for commodity prices is once again moving to the positive. RIO in particular, but also BHP, are both trading near their lowest valuations seen over the past two decades at a time when their earnings growth outlooks remain very strong.

David Fuller's view I don't disagree and both BHP Billiton and Rio Tinto (shown here in UK prices but you will find charts of them in AUD and USD in the Library) remain among my personal top-10 long-term equity positions. However, I am surprised that Macquarie made no reference to the Australian government's proposed Super Profits Tax in their report, as few firms would be better informed on this subject. Do they think it will be a non event, or is it too controversial and politicised for comment? Whatever, both shares appear to have established important new floors following significant medium-term corrections and I would not be surprised to see this year's highs tested before yearend.