Societe Generale has cut its ratings for BHP PLC (LON:BHP) and Rio Tinto PLC (LON:RIO) as the French bank moves to a more cautious stance on most of the Metals & Mining stocks it covers after gains posted across the sector in the year-to-date.
In a note to clients, SocGen’s analysts said: “While sentiment towards the sector remains positive, it is uncertain how long this will last given mixed macroeconomic data and relatively subdued commodity price momentum.”
The analysts said they have adjusted sector valuations to reflect the optimism in the markets leading them to downgrade BHP’s rating to ‘hold’ from ‘buy’ with a reduced target price of 1,680p, down from 1,780p, and cut Rio Tinto to ‘sell’ from ‘hold’, albeit with an increased target price of 3,880p up from 3,830p.
The analysts pointed out that the Metals & Mining sector got off to a strong start this year, with the Stoxx 600 Basic Resources rising 16.5% year-to-date in US dollar terms after a correction in the second half of 2018.
They said: “As of now, the index has recouped about half of the ground lost since the 2018 peak, leaving room for another leg up if macro conditions stay supportive.
“On the other hand, equities have outperformed base metals, which is a cautionary sign judging by historical precedents, just as bulk commodities seem to be peaking again.”
The analysts added; “The current positive sentiment towards the sector is mainly supported by hopes for the nearing resolution of the US-China trade spat and evidence of renewed easing measures implemented by the Chinese authorities.
“However, neither is guaranteed to translate into stronger growth in the world’s second largest economy, and there are signs of economic momentum sputtering elsewhere.”
Rio Tinto was the biggest FTSE 100 faller on Thursday, albeit with its shares trading ex-dividend, down 7.4% at 4,146p, while BHP shed 2.8% at 1,728.60p.