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Metals mania is back. Since the start of January, the Toronto Stock Exchange’s mining sector has surged to double-digit gains, led by the likes of Ivanhoe Mines Ltd., HudBay Minerals Inc., First Quantum Minerals Ltd. and Teck Resources Ltd., each of which has rocketed ahead by 27 per cent or more in less than four weeks.
The big gains reflect a growing consensus that global growth is picking up, fuelled by solid growth in China, an improving outlook in Europe and enthusiasm about U.S. President Donald Trump’s spending plans.
However, the leaping share values also raise questions about whether investors may be getting ahead of themselves.
After gaining 10.6 per cent so far in January, the TSX materials sector doesn’t look particularly cheap in terms of underlying earnings – especially since global growth, while on the upswing, remains muted.
“There is now too much optimism about demand priced into metals markets,” Capital Economics argued in a recent report. “Trump is unlikely to push through his spending plans in full. And in any case, the U.S. is a relatively small consumer of metals and strong growth there will not offset the likely moderation in China’s demand.”
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