The mining sector could be a powerful outperformer, if Chinese stimulus can provide a positive economic impulse into 2023, that’s according to analysts at Barclays.
“Mining tends to outperform in both stagflation and pre-recessionary periods,”
Barclays analysts note that stagflationary conditions such as those seen today have preceded 5 out of the last 7 recessions, and, the sector had outperformed consistently.
“History suggests mining tends to outperform ahead of recession, by 9% on average over 6 months pre-recession with reasonable consistency (5 out of 7 episodes),”
“Once recession starts, performance flatlines for about 5 months before underperforming by 10-12% over the next 7 months on average. The sector typically bottoms 12 months after the recession started.”
Barclays says that China is key.
“The sector can continue to outperform, at least until it is clear a recession is underway,”
“If China can deliver material positive economic impulse into 2023as a result of recent stimulus measures and avoid further lockdowns, the sector could deliver powerful relative outperformance, even during a recession.
“The key risk is further COVID lockdowns although this has not prevented the sector outperforming over the last 3 months.”
Barclays says London-listed Glencore PLC (LSE:GLEN) and Antofagasta PLC (LSE:ANTO) are among its ‘preferred names’ in the sector and both are rated as ‘overweight’.