MARKETS SPECATOR: Year of the miners?

Is Russian billionaire stalking Linc Energy?

Since Roman Abromavich toured Linc Energy's site in Queensland on November 8, 2012 the stock has surged 80 per cent on very strong volumes.

Source: Iress

There have been a number of positive releases since then, but the magnitude of the gains on such big volumes has me asking questions.

Definitely one to watch.

JP Morgan recommends 'overweight' large miners in 2013

In its Australian strategy outlook for 2013, ‘Old snake in new skin', JPMorgan believes the Chinese year of the snake will see the themes of 2012 drag on as low growth and low interest rates provide a solid background for the equity market.

For the domestic economy, the broker sees more snakes than ladders next year. "In our view, the Aussie economy is entering a riskier phase as the public and corporate sectors pull in their horns and export earnings take a knock,” JPMorgan noted.

"The Aussie growth parcel is being thrown to the households, but they are constrained by a softening labour market, low appetite for leverage and credit supply. Even if rates fall further, as we expect, this is a risk for domestic cyclical sectors including banks where we are underweight.”

However, it believes the mining sector need not be left behind this time, recommending a modest 'overweight' to mining stocks, more as a relative call rather than outright bullishness. It sees sentiment on near-term Chinese demand risks continuing to improve, but longer-term concerns are likely to remain.

JPMorgan adds that the sector's valuation case relies heavily on the currency and is therefore not compelling, in its view. It prefers the larger mining names.

Addressing the recent strength in defensive, high-yield names, JPMorgan argues the ‘flight to safety' looks somewhat exaggerated and that the market has shown a willingness to buy earnings risk where it can get its arms around it, particularly in cyclical industries with a well-defined return characteristics.

The problem the broker sees is the shortage of candidates, hence it still has a reasonable weighting to defensives, but argues against giving special prominence to high yielding stocks.