After years of underperformance, mining stocks and related exchange traded funds are looking like an attractive contrarian play, with analysts from JPMorgan turning bullish on the sector.
“We believe the risk-reward for miners is improving,” Mislav Matejka, a equity strategist for JPMorgan, said in a note, CNBC reports. “We have been structurally cautious on miners for nearly three years, but believe one should be reversing that stance now.”
Supporting the miners group, China is coming out with positive economic data. China’s official factory activity number slightly increased in April, rising to 50.4 from 50.3 in March, which suggests that the world’s second-largest economy is starting to stabilize. [Miners ETF is a Gold Standard for Gold Equities]
JPMorgan analysts argue that the numbers showed a robust figure for commodity imports. A relatively subdued inflation should also help support demand for the coming years.
Moreoever, cost reductions and cuts to capital expenditure could benefit metal producers, and a weaker U.S. dollar would help USD-denominated commodities strengthen.
Citi analysts are also warming up to the basic resources sector.