JP Morgan’s British investment bank, JP Morgan Cazenove, has altered its outlook on the mining sector, raising its view from underweight to overweight and driving a resurgence in the share prices of dual-listed market leaders BHP Billiton and Rio Tinto.
The renewed confidence lifted the stock of major mining firms up over 2% in European trade, with Rio’s UK share price jumping close to 5% and BHP’s adding 2.5% by the close of trade.
It bodes well for a strong day of trade on the ASX today, with the positivity spreading to commodity prices as gold, oil and copper all made significant gains in overnight trade.
Copper led the way with a surge of more than 2%, pushing it to two-month highs.
It came as JP Morgan analyst Fraser Jamieson said the second half of the year would “see the sector’s free cash flow improvement, capital returns potential and attractive relative valuation begin to be appreciated more fully".
The analyst labeled Rio Tinto as the investment bank’s top pick in the sector due to its estimated free cash flow in 2015 coming in “among the highest across the market”, which could allow for a dividend yield of around 4% and either a special dividend or share buyback.