Investec boosts target prices, bias towards miners

“Fundamentals in China have mildly improved, but not to the extent that equity price moves can be fully justified,” the team of analysts led by Hunter Hillcoat said in a research note sent to clients.

That led them to the conclusion that the rally was largely the result of US dollar weakness and improved sentiment towards the outlook for growth in Asia’s largest economy – factors they expected to predominate in the near-term.

Prices needed to continue dis-incentivising for stockpiles to reduce and markets to rebalance, Investec said.

Hillcoat and his team also pointed out the “strong” inverse correlation which emerged between the value of the US dollar and commodity prices in recent months.

“We do not see the slight improvement in Chinese economic fundamentals as sufficient to fully justify a material improvement on our outlook for commodities. We note this view is shared by many of the major global mining companies,” they added.

Investec also pointed out how it was the most heavily geared companies which had been most richly rewarded in the recent leg up in share prices and highlighted how companies had avoided raising equity during the rally so as to avoid unnecessarily diluting shareholders.

“We maintain our preference for gold exposure but remain bearish on the prospects for coal, PGMs, nickel and aluminium.”

“The bottom of the market [for stocks in the sector] appears to have been tested and found, but we do not see this as the beginning of a renewed bull market.”

The broker lifted its recommendation on BHP Billiton from ‘sell’ to ‘hold’ and lifted its target from 739p to 987p.

Rio Tinto’s target was also boosted from 2,235p to 2,562p, that on Glencore from 63p to 117p and for Anglo American from 303p to 502p.

The upward revision to Glencore’s target was the largest, following by Acacia Mining (from 184p to 328p) and Centamin (from 79p to 119p).