8th Mar 2016 10:39
LONDON (Alliance News) - Shore Capital says the recent strong run for UK mining shares, driven by a steep rise in metal prices, looks overdone amid signs of a deteriorating economic picture in the latest data out of China.
"Given recent Purchasing Manager's Index data and unofficial anecdotes we have been hearing, it seems clear to us that the economic situation in China is getting worse, rather than better," said Shore analyst Yuen Low.
The broker noted the Caixin manufacturing PMI fell unexpectedly to 48.0 in February from 48.4 in January. This was the lowest reading in five months, and was below economists forecasts of an unchanged score of 48.4. Official manufacturing PMI slid to 49.0 in February from 49.4 in January too, Low said, falling shy of consensus estimates of 49.3.
The FTSE 350 Mining Sector index was down 3.7% Tuesday morning, following a run of seven consecutive sessions of gains.
However, the rally in the sector index started earlier in 2016. In mid-January the index touched a low of 5,865.31 points, its lowest level since late 2003. Since then, it has risen 64%, standing Tuesday at 9,653.57.
"We had previously said that US Federal Reserve developments and Chinese seasonal buying would provide short term support for metal prices, but we consider the recent rally to have become significantly overblown," said Low.
As a result, the broker said it "would now be strongly inclined towards shorting base and industrial metals" as iron ore, copper and nickel, and large-cap miners as Anglo American, Glencore, Antofagasta, Rio Tinto, BHP Billiton.
FTSE 100-listed non-gold miners were firmly in the red Tuesday, with Anglo American down 6.7%, Glencore down 4.8%, Antofagasta down 4.3%, Rio Tinto down 4.2% and BHP Billiton down 4.2%.
By Daniel Ruiz; [email protected]
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