The cheap miners trap
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Want to bottom fish mining stocks? Be careful, warns Citigroup analyst Jon Bergtheil, “it is easy to forget how volatile metals prices can be”.
BHP’s stock has fallen 19% since its 52-week high on February 19 of $39. Rio Tinto’s shares are down 28% since their 52-week high on February 14 of $72.07. Fortescue’s stock has plunged 44% since their 52-week high of $5.39, also on February 14. The spot price of iron ore imported through the northeast Chinese city of Tianjin has also fallen 28% since its 52-week high of $US158.90 a tonne on February 20.
“Growth is weak and commodity prices subdued,” says Bergtheil’s Citi colleague David Lubin.
Of more of a concern for miners and the broad Australian market is that global earnings revisions, on the cusp of an overall upgrade a month ago, are now trending down. Analysts are putting in more downgrades, says Citi analyst Robert Buckland. This is consistent with a fall in global stock prices.
The global earnings revisions index was at 0.18 last week, according to Citi. This means the upgrade to downgrade ratio was two-to-three, the worst in the year to date.
At 1454 AEST the S&P/ASX200 Index was up 60.84, or 1.3%, to 4716.80. The index is up just 1.5% this year compared with as much as 12% between January 1 and May 14 when it rose to a 52-week high of 5220.987.
On a US dollar basis, the index is down 9.6% this year.
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