Investors of ASX-listed iron ore miners have been left battered and bruised after an unceremonious fall in the commodity's price. In the space of four months, the spot price of the steel-making material has tumbled nearly 60%. Unsurprisingly, the implosion has left the share prices of Aussie iron ore producers in its wake.
Despite this, one Sydney-based fund manager is seeing it as an opportune time. In its October report, the managers of the Perennial Value Australian Shares Trust discussed the factors weighing on ASX iron ore miners, and how they're positioning the fund looking forward.
So, what is behind Perennial Partner's shifting sentiment?
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What's been weighing on ASX iron ore miners?
Firstly, the Perennial Value Australian Shares Trust had a challenging month in October. While the S&P/ASX 300 Accumulation Index delivered a 0.1% increase month-on-month, the value-orientated fund went 0.3% backwards. Notable detractors for the fund included Smartgroup Corporation Ltd (ASX: SIQ) and Star Entertainment Group Ltd (ASX: SGR).
However, iron ore miners were of particular interest to the fund during the month. A continued weakening from US$115 per tonne to US$105 per tonne played out in October.
According to Perennial, this downwards pressure was the fault of continued slowing in the Chinese property sector. Simultaneously, lingering steelmaking restrictions imposed by the Chinese government stifled demand. These combined created a strong headwind for ASX-listed iron ore miners.
A big component of the China property woes has been the Evergrande saga. The giant real estate developer has been dancing with debtors as interest repayments come due. Meanwhile, Evergrande is not the only developer financially struggling. The industry as a whole in China is seemingly on its knees.
Unfortunately, the data is damning for iron ore producers. In a statement from the treasurer of Australia, Josh Frydenberg, China's property sector accounts for half of the country's steel production. Therefore, any weakness in construction traces back to a weakness in iron ore prices.
How is Perennial playing the sector?
Even though the current environment may seem bleak, Perennial Partners have been reducing its underweight position in the likes of BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).
Previously, the fund had moved to an underweight rating when iron ore prices were being considered unsustainably high. However, the Aussie fund believes the share prices of these companies have now fallen to attractive levels.
With an increased position in ASX iron ore miners, the fund finished October with an overweight exposure to the materials sector relative to the index.
