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Mining stocks

Bashed, beaten and unloved, mining stocks have fallen out of favor with investors in the last
two years as commodity prices showed signs of peaking. But just when things could have
turned from bad to worse it appears that the basic resources sector is the new contrarian play
for 2014.
Nothing sums up the change in opinion better than JPMorgan's assessment of the situation in
a research note on Monday. Detailing a rebound in activity, the U.S. investment bank has
stated it is now "overweight" on the mining sector, after being "underweight" for the last two
years.
"We believe the risk-reward for miners is improving," a European equity strategy team led by
Mislav Matejka said in a note on Monday. "We have been structurally cautious on miners for
nearly three years, but believe one should be reversing that stance now."
The basic resources sector added 2 percent on Monday with this bullish outlook adding to
positive data coming out of China. U.K.-listed Rio Tinto climbed 3.2 percent by midday with
JPMorgan adding it to its list of top picks with BHP Billiton rising 2.3 percent for the same
reason.
Figures last week showed China's official factory activity number picked up slightly in April,
creeping up to 50.4 last month from 50.3 in March rising further above the 50-point mark
that separates expanding activity from a contraction. This gave rise to further suggestions that
the world's second-largest economy is beginning to stabilize. Matejka believes that the data
were strong and showed a robust figure for commodity imports. He added that growth-
supportive measures by the Chinese government, with inflation remaining fairly subdued,
should also boost the sector in the coming years.
China's ruling Communist Party has been piling on the rhetoric in recent months, indicating
that a change to a more consumer-led economy would provide the backbone of the country's
future success. Many analysts have seen this as a sign that the commodity supercycle could
be ending as China opts to buy more dishwashers than raw materials. However, Matejka's
research suggests that there is more room to run for the miners with exposure to the region.
And it's not just the China story that is fueling his bullish views. Cost cutting and a reduction
in capital expenditure are also seen as benefits to these mining firms, while a weak dollar will
push the price of commodities traded in dollars up.

Miners in SA will face 'hostile' environment: Pro
Neil Dwane, chief investment officer for Europe at Allianz Global Investors, says mining
companies investing in South Africa will continue to face a "hostile" political environment.
The basic resources sector was the worst performing industry group on the pan-European
Euro Stoxx 600 Index last year, falling over 13 percent and was the only sector to post a loss
for the year. This year's performance shows a change in fortunes, with the sector ticking
higher by nearly 5 percent despite the wider equity bourses failing to show the strong rallies
of 2013.
Equity analysts at Citi, meanwhile, point out that the sector is still "delicately balanced" at the
moment and remain "super-vigilant" with equity prices effectively going sideways in the last
nine months.
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