Blistering European mining rally hinges on China, Trump and dollar – by Atul Prakash and Peter Hobson (Reuters U.S. – December 9, 2016)

LONDON, Dec 9 European miners are in a race for the title of the best sector performer this year, a sharp turnaround from a slump in 2015, although the rally extending into 2017 rests on U.S. president-elect Donald Trump and China.

A recovery in commodity prices, better balance sheets and brighter global economic growth prospects have underpinned the rally in so-called ‘cyclical’ stocks – which tend to follow the fortunes of the wider economy – that were beaten down to low valuations at the end of 2015.

Glencore’s move to join a consortium taking a stake in Russian oil giant Rosneft suggests some companies are getting more confident about their balance sheets, analysts said. But with several blue-chip mining shares surging, a lot of optimism may already be in the price, they said.

Companies such as Anglo American and Glencore , up 315 percent and 235 percent respectively in 2016, have helped the mining index to surge 70 percent this year and be on track to snap a three-year losing streak. In contrast, the pan-European STOXX 600 is down 3 percent.

The sector is also relatively expensive, with its price-to-earnings ratio now at 14.6 times forward earnings, against a 10-year average of 11.5, according to Thomson Reuters Data. With valuations not so supportive, any sign of fresh wobbles in China, or that an expected fiscal stimulus from Donald Trump’s incoming U.S. administration may not be as big as hoped, risks derailing the current rally.

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