JP Morgan stays overweight on Glencore, sees China macro alignment for 2H 2022 outperformance

In their opinion, economic growth in China should rebound to a pace of over 7.0% quarter-on-quarter across the last six months of the year.

Hence its equity strategists' 'overweight' stance on the space.

However, there was a potential fly in the ointment, they added, in the form of negative risks around companies' guidance at the end of the second quarter.

More specifically, risks as regarded costs, operational weakness and lower commodity prices did not "appear [to be] fully discounted in consensus 2022/23 earnings."

On the flip-side, Mining had been the weakest sector in MSCI Europe over the second quarter.

"Share prices are discounting recession and valuation support is evident if the macro base case is a China recovery plus secular demand growth in base metals," they explained.

Against that backdrop, their 'conviction overweight' call within the sector was Glencore (Target price: 640.0p) with the analysts opting to raise their estimates for the outfit's earnings per share over 2022-23 by 14% and 19%, respectively, on the back of higher coal prices.

The target price for Glencore was also revised up from 630.0p.

They also placed Glencore's shares on "positive Catalyst Watch" ahead of its results for the first half, on the expectations that excess capital would translate into peer leading distributions.

"Looking to a H2’22 China rebound, consensus cleansing in Jul/Aug could unlock attractive multi-year entry points for candidates that include: RIO, BHP, Anglo, Antofagasta (all Neutral), First Quantum and Lundin (both OW)."

Similarly, analysts at Citi were telling clients that although miners' earnings were at a 10-year high, markt-to-market earnings risk lay "slightly" to the downside for 2022 on average and "significantly" higher for 2023.

"Rising bond yields, high inflation, recessionary fears and geopolitics are weighing on the equity market and are likely to put pressure on 2022 EPS," they said.

"But this time around, even if the EPS outlook weakens, dividends should be resilient given strong cash flow estimates."