After sector’s huge advance, mining shares are ‘starting to look vulnerable’ – by Ian McGugan (Globe and Mail – May 04, 2016)

The eye-popping run-up in mining shares since the start of the year is hitting a rough patch.A weak reading on China’s manufacturing sector hammered the stocks of many miners on Tuesday, demonstrating the fragility of the new optimism surrounding commodities.

Analysts cautioned that the recent surge in mining shares may have been too much, too fast, for a sector that was devastated in 2015. “We are a little concerned about the scale of recent gains,” Caroline Bain and her team at Capital Economics wrote in a note on Tuesday. “Prices are starting to look vulnerable if, as we expect, the U.S. economy bounces back.”

Any fall in mining shares would be painful for Canadian investors. Since the start of the year, stocks in the S&P/TSX materials index have jumped 38.2 per cent, by far the best performance of any industry in the market benchmark.

All of the top 10 performing stocks on the Toronto Stock Exchange this year are miners. Several of the big gainers, including Kinross Gold Corp., Barrick Gold Corp. and Teck Resources Ltd., have more than doubled since Jan. 1.

But the sector’s huge advance is now creating skeptics. Citigroup analysts argued in a report last month that the share prices of global miners had “run too hard, too fast and valuations look stretched.”

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