Industry Trend Analysis - Resilience Of Mining Equities & Industrial Metals To Continue - SEPT 2017
BMI View: M ining equities and industrial metal prices will remain resilient in the next three-to-six months due to the lagged positive effect of Chinese infrastructure projects initiated during H216-Q117 on demand and hence prices of metals used in construction. Mining equities will be further boosted by improving financial results stemming from a continued focus on debt and cost reduction. As a result, we expect mining equities to outperform the index.
Mining equities and industrial metal prices will post strong relative performance in Q317 at least, as Chinese economic strength and demand for metals used in construction will buoy prices until new infrastructure project pipelines start thinning towards the end of 2017. This fundamental view is supported by the technical price picture, as the S&P Goldman Sachs Industrial Metals Index has convincingly broken through resistance, triggering an inverse head-and-shoulders reversal pattern with the potential to take prices substantially higher. At the same time, the MSCI World Metals and Mining Index has been boosted by the release of positive H117 results by major mining companies in July/August. We believe that mining equities will generally outperform in the coming quarters compared to the wider equities market, due to both weak medium-term returns for the broad MSCI equity index, which is heavily weighted towards US stocks, and more resilient performance by mining equities. We are bearish towards US stocks on a multi-quarter horizon. Although mining equities have already outperformed handsomely since Q116, the trend is not overextended from a historical perspective, due to the severity of previous mining underperformance in 2011-2015. For instance, the ratio of the MSCI Mining & Metals Index to the broader MSCI All Countries World Index remains 35.4% below its 20-year average ( see chart below).
Outstanding H117 Results, Dividends & Mineral Prices To Increase Attracti veness Of Mining Equities
|Mining Outperformance Has Room To Run|
|Ratio Of Mining Equities To Global Equities|
|Note: A move higher in the ratio implies mining equity outperformance. Source: BMI, Bloomberg|