Resources companies that have been smashed by slowing demand from China may rebound from their current performance woes as early as next year, according to the $900 million BKI Investment Company.
The listed investment company, which is run by the family that founded Washington H. Soul Pattinson & Co, believes underperforming resources companies will claw their way back into investors' good books as market volatility settles.
BKI is confident major Australian resources companies exposed to commodities such as oil, coal and copper in particular will bounce back as the imbalance between supply and demand is adjusted and the Australian dollar declines further.
"They're all cyclical and they'll rebound although until we see increased demand for iron ore, copper, and coal in particular, it's going to be difficult," Tom Millner, chief executive of BKI, said.
"But that could be only 12 to 18 months away – there will be an opportunity to buy more BHP Billiton for instance, but I think it's a bit early yet."
Shares in companies such as Rio Tinto and BHP Billiton have plunged 24 per cent and 40 per cent respectively in the past 12 months, compared with the 7.4 per cent falls of the benchmark S&P/ASX200 index.
The companies, along with other commodities stocks such as Santos, Fortescue Metals and Woodside Petroleum, have taken a battering as China's economy goes through major change. transitions its economy.
BKI, which invests across the sharemarket, has been underweight resources, energy and materials companies. The company has less than 10 per cent of its portfolio exposed to resources.
The investment company unveiled a $21.38 million profit before special investment revenue for the six months to December – up from $20.8 million in December 2014. The company held stakes in 56 companies including Commonwealth Bank of Australia, Telstra Corporation, retail group Wesfarmers, insurer IAG and Ramsay Healthcare at the end of last year.
BKI's portfolio returned 10.9 per cent for the half year compared with the S&P/ASX300 Accumulation Index's 2.8 per cent gains over the same period.
Investors will pocket a 3.6¢ per share dividend for the period, up from 3.55¢ in 2014.
BKI's results, like many of its listed investment company peers, come amid a period of extreme volatility across investment markets.
The International Monetary Fund slashed its global growth forecasts for the next two years as it pencils in sharper than expected slowdowns in commodity-exporting emerging markets. But the IMF is still forecasting an increase in world growth to 3.4 per cent this year and 3.6 per cent in 2017, compared with 3.1 per cent last year.
Meanwhile, the Reserve Bank of Australia is keeping interest rates at a record low 2 per cent.
"We expect the low interest rate environment in Australia to continue for some time," BKI said in an update to investors.
"Once again, the most sought after equity investments are likely to be those companies offering quality and sustainable dividend yields, with robust balance sheets and that are well managed."