Metal diggers have been in favour since June but City experts today called on punters to bet against the entire sector.
JPMorgan Cazenove’s analysts have watched the mining sector jump 30% in the past four months. But signs that iron ore prices may weaken, accompanied by economists claiming Chinese activity momentum peaked in the third quarter, could mean miners are in for a tumble. So JPMorgan’s hunch is not just to sell but actively bet they will fall.
JP’s Mislav Matejka and his team recommend investors reopen a short position, saying: “We tactically closed our long-standing underweight position in the mining sector in June as we thought that sentiment toward China and commodities had overshot.”
But all that has changed and Matejka today argued “that one should re-enter the short in the sector”. The fall was already under way — the mining sector took eight points off the FTSE 100 index with mining giants Anglo American (down 26p to 1466.5p) and Rio Tinto (off 42p to 3276.8p) among the worst fallers
Matejka added: “The structural backdrop in China remains challenging. We recommend using any potential bounces to open short positions on a three to six-month horizon, and possibly longer.”
The diggers’ weakness meant the wider market was largely lacklustre with the Footsie up only 13.48 points to 6721.9. Traders are remaining largely cautious, awaiting signs of a move in the US to reduce monetary stimulus.
Drugs group Shire was up 110p at 2905.5p on news it has made its biggest acquisition — forking out $4.2 billion (£2.6 billion) on rare-diseases specialist ViroPharma. Taxpayer-owned Royal Bank of Scotland picked up 6.6p to 329.1p as analysts at Jefferies declared its much-criticised “internal bad bank” might not be such a bad idea. Jefferies rated it a Buy, and argued that there will be more visibility on returns for its core business. It has also increased the likelihood of paying a dividend from 2015. It raised its price target to 441p.
Bottom of the table was broadcaster BSkyB (down 96p at 834p) on news BT (up 0.9p to 373p) had won the rights to broadcast Champions League and Europa League football matches.
On the mid-tier table, one miner was on the rise. Platinum digger Lonmin beat City forecasts with annual profits of $140 million, and was 22p better at 350p. Funeral services specialist Dignity reported a rise in sales and profits, and was 22p ahead at 1435.5p.
Flybe flew up 12.9p to 81p when new chief Saad Hammad revealed a return to profit, job cuts and a new strategy for the regional airline.
PORTFOLIO
BUY
CENTAMIN
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Snap up shares in Centamin, Liberum Capital advises. The broker acknowledges the risks for the Egyptian gold miner, including the court case about rights to its mine. But Liberum is “cautiously optimistic” on a positive resolution and likes the production outlook. It gives it an 81p price target for shares which are around 50.9p.
SELL
RENTOKIL INITIAL
Flog shares in Rentokil, Peel Hunt recommends. The broker is worried that at the end of a “major restructuring”, the pest control specialist might not be able to deliver sustainable and consistent organic growth. It sets a 95p target for shares around the 106p mark.
HOLD
IAG
Hang on to IAG, Investec insists. The broker notes the strong third-quarter update last week from the cosolidated owner of British Airways and Spain’s national carrier, Iberia, but it is worried about “capacity growth”. Shares at present are around 379p a pop and Investec places its target price under review.
