Advertisement

Miners hit by growing fears over 'hard landing' in China

Mining equities were under pressure on Tuesday on the back of fears of a so-called 'hard landing' in China, as analysts turned more bearish on the outlook for one of the world's biggest consumers of metals.

Mining equities were under pressure on Tuesday on the back of fears of a so-called 'hard landing' in China, as analysts turned more bearish on the outlook for one of the world's biggest consumers of metals.

A growing number of analysts have pared their growth forecasts for China over recent week after it was revealed that the economic powerhouse grew by just 7.7% in the first quarter of 2013. This was the first time that Chinese gross domestic product (GDP) registered four consecutive periods of sub-8.0% growth in at least 20 years.

Advertisement - Article continues below

JPMorgan Chase & Co is now the latest bank to lower its forecasts for China, following in the footsteps of Standard Chartered, ING and HSBC, to name a few.

Copper prices were also firmly lower today on worries over demand and as stockpiles (as measured by the London Metal Exchange) increased the most in four weeks.

As well as concerns over China, stock markets are also beginning to contemplate a possible 'exit strategy' from Federal Reserve stimulus after a Wall Street Journal article this weekend said the Fed is starting to map out plans on how to scale back its $85bn-a-month asset purchase programme.

Advertisement
Advertisement - Article continues below

JPMorgan, BofAJPMorgan Chase & Co overnight reduced its 2013 GDP forecasts for China and now expects the economy to expand by 7.6% this year, down from the previous 7.8% estimate.

Meanwhile, the Bank of America Merrill Lynch (BofA ML) fund manager survey (FMS) released today showed that investors in May are "positioning themselves for slower growth in China and prolonged low inflation" which sent commodities allocations to a four-year low.

Advertisement - Article continues below

According to the survey, a quarter of respondents have highlighted a hard landing in China and a "commodity collapse" as their number-one 'tail risk', up from just 18% the month before.

"May's FMS demonstrates a clear exit from China and assets connected to China - in the shape of commodities and emerging market equities," said Michael Hartnett, Chief Investment Strategist at BofA ML Global Research.

Barclays turns 'negative' on minersBarclays was providing further downwards pressure on stocks after cutting the European mining sector from 'neutral' to 'negative'.

"In the longer term we believe the building blocks that made up the supercycle are gently being removed. Supportive Chinese demographics, investment led economic growth and availability of easy credit, lack of investment in mine supply, and difficulty in bringing it to market are all now either leveling out or reversing," Barclays said in a research note.

"In the second half, fear is likely to become reality with [about] 70% of the additional volume of iron ore and copper scheduled for 2013 arriving in the next six months. It is happening when the broader demand picture is deteriorating and Q3 is a seasonal soft time for metals markets," they added.

Advertisement
Advertisement

Recommended

Broker safety – your questions answered
Investment strategy

Broker safety – your questions answered

Cris Sholto Heaton answers more of your questions about the safety of stockbroker accounts
25 Mar 2020
How demographics affects stock valuations
Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Do you own shares in Sirius Minerals? Here’s what you need to do now
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Why investors should be “cautiously bullish” for 2020
Stockmarkets

Why investors should be “cautiously bullish” for 2020

Analysts have been out in force making rosy predictions for stockmarkets in 2020, but while there is certainly a case for optimism, investors should r…
17 Jan 2020

Most Popular

OBR: UK house prices could fall by 12% next year
House prices

OBR: UK house prices could fall by 12% next year

The Office for Budget Responsibility says UK house prices could fall by as much as 12% next year. John Stepek looks at how likely that is.
14 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
We’re spending more than at any time since World War II – how will we pay it back?
UK Economy

We’re spending more than at any time since World War II – how will we pay it back?

With the UK spending vast sums on stimulus measures, this year’s budget deficit will be greater than at any time since World War II. The big question,…
14 Jul 2020