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.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
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.
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.
