(Bloomberg) — When do you catch a falling knife? That’s what investors in resource-related stocks must wonder after the Stoxx basic resources sub-sector tumbled nearly 10% since the coronavirus crisis escalated in mid-January, and as commodity prices are rebounding today.
Metals and miners have been feeling the heat, as uncertainty mount over the impact on Chinese economic growth and demand for commodities. But as in every sell-off, pockets of opportunity may be emerging.
First, there’s the context: China now accounts for over half of global demand for industrial metals, compared to 20-25% in 2003 when the SARS virus broke out, says Hans Guennewigk, a portfolio manager at Consortia Asset Management. But: there’s also what the country might do to limit the economic damage.
“Once the coronavirus is under control, China will do everything it can to meet its growth target — doubling GDP in 2020 versus 2010,” Guennewigk says, adding that he’s a buyer on the weakness of miners including Anglo American Plc, Teck Resources Ltd. and Freeport-McMoRan Inc.
Looking at valuations, Deutsche Bank AG analysts say their mining universe has moved from a 5% discount to the market before the outbreak to a 12% discount currently. But it’s not at panic levels, typically suggested by a 20% discount during major risk-off phases, they say.
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