Investors are finally seeing potential in European mining shares, as China's step-by-step economic stimulus is steadily laying the foundations for a recovery of the unloved sector. The STOXX Europe 600 mining index has fallen 15% this year, making it the worst performing sector in the region by some margin, with second-placed real estate down 4.5% and the top-performing retail index up 27%. The metals and mining sector is typically used as a proxy for equity investors in Europe to gain exposure to China, given it is the world's largest commodities consumer, and it has sunk along with China's growth expectations.
FILE PHOTO: The logo of commodities trader Glencore is pictured in front of the company's headquarters in BaarLONDON - Investors are finally seeing potential in European mining shares, as China's step-by-step economic stimulus is steadily laying the foundations for a recovery of the unloved sector.
The world's second-largest economy has been struggling after a brief post-COVID surge, dragged down by huge debt due to decades of infrastructure investment and a property downturn. Analysts forecast the economy will grow by just 5% this year, the slowest rate, outside of COVID years, since 1990. Sweeney says this wide range of measures could be a catalyst for an upturn in the metals and mining sector.
Considering China's heft in the commodities world - Morningstar estimates it accounts for over 50% of refined copper demand and about 70% of the seaborne iron ore trade - some of that resilience should eventually seep into mining stocks, analysts said. Copper is the backbone of the electric and electronic industries and is essential in upgrading power grids, building solar farms, wind turbines and electric vehicles.
Major does not believe stimulus in China will lead to the kind of explosion in commodities demand seen after 2008, when the country bounced back from the global financial crisis.
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