JPMorgan Downgrades Metals and Mining Stocks

Investing.com — JPMorgan has downgraded multiple metals and mining (M&M) stocks following China's recent stimulus efforts, suggesting that the expected impact of the policy measures may be more limited than initially hoped.

The move follows a brief 10% rally in industrial metal prices after China unveiled its most significant monetary policy loosening since 2015. However, JPMorgan analysts caution that despite this initial boost, the mining sector faces downside risks due to other factors, including potential trade disruptions from the upcoming U.S. elections in November.

As a result, JPMorgan downgraded Anglo American PLC (LON:AAL) from Overweight to Neutral. Analysts noted, "While we think Anglo looks strategically vulnerable, we see a lower probability of revived M&A interest until the divestment of PGMs, diamonds and coal is substantially completed under its own corporate restructure."

Against the backdrop of JPMorgan’s cautious view on the sector, the firm does not foresee any near-term catalysts. Additionally, Boliden AB (ST:BOL), which has significant exposure to the zinc market, was cut to Underweight due to expected earnings headwinds and potential downside risks in zinc prices. The bank also remains Underweight on Antofagasta (LON:ANTO), highlighting concerns about its copper output guidance for 2024 and 2025.

Despite China's policy easing temporarily supporting metal prices, JPMorgan suggests that a more significant catalyst for price volatility could be the outcome of the U.S. elections. The report references trade tensions of 2018, when tariffs imposed by the Trump administration led to a decline of over 10% in metal prices and mining equities.

Analysts projected potential downside of ~10-20% to fair value for major European M&M equities in scenarios where base metal and iron ore prices fall over 10%. They concluded that European M&M equities carry near-term downside risk, even after the recent China-led sell-off.

In a more severe scenario where metal prices drop by more than 20%, JPMorgan foresees a downside risk exceeding 20%. They believe that metals and mining equities are not currently factoring in the proper risk premium for the possibility of higher global trade tariffs.