Mining stocks on cusp of supercycle as AI boom stokes metals

[NEW YORK] Global mining stocks have shot to the top of fund managers’ must-have list, as soaring metals demand and tight supplies of key minerals hint at a new supercycle in the sector. 

With a nearly 90 per cent gain since the start of 2025, MSCI’s Metals and Mining Index has beaten semiconductors, global banks and the Magnificent Seven cohort of technology stocks by a wide margin. And the rally shows no sign of stalling, as the boom in robotics, electric vehicles and artificial intelligence data centres spurs metals prices to ever new highs. 

That is particularly true of copper, which is key to the energy transition and has surged 50 per cent over the same period. But analysts are also bullish on a range of other minerals, including aluminium, silver, nickel and platinum. Gold, meanwhile, is expected to continue benefiting from US monetary and fiscal policy concerns, as well as geopolitical risks, even after hitting successive record highs. 

The outperformance is a stark reversal from prior years when the sector was out of favour, hit by volatile commodity prices and fears of a growth slowdown in China, the world’s largest metals consumer. But fund managers, who had piled into tech and financial stocks, now appear reassured by Beijing’s pledges to support the economy, including via interest-rate cuts.  

“Mining stocks have quietly moved from a boring defensive sleeve to an essential portfolio anchor – one of the few sectors positioned to capture both shifting monetary policy dynamics and an increasingly volatile geopolitical landscape,” said Dilin Wu, a research strategist at Pepperstone Group in Melbourne. 

A major driver for the change is that commodities such as copper and aluminium have become less correlated to economic cycles. Historically seen as short-cycle trades, dictated by how fast or slow the world economy is growing, they have gradually morphed into structural investments. 

In addition, they are benefiting from transition strategies, where investors buy assets such as metals to gain exposure to the AI theme. 

Hence, the rush to buy the dip whenever weak data knocks mining stocks. European fund managers now have a net 26 per cent overweight on the sector, according to Bank of America’s (BOA) monthly survey. That is the highest in four years, though still well below the 38 per cent net overweight held in 2008.

And yet, the sector looks pretty undervalued. 

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The Stoxx 600 Basic Resources index trades at a forward price-to-book ratio of about 0.47 relative to the MSCI World benchmark. That is an about 20 per cent discount to the long-term 0.59 ratio and well below prior cycle peaks above 0.7.

“This valuation gap persists even as the strategic relevance of natural resources has risen materially,” Morgan Stanley analysts led by Alain Gabriel wrote. 

Gabriel also notes companies’ increasing preference for “buy over build”. Various mergers and acquisitions transactions are underway – notably Anglo American’s acquisition of Teck Resources and a potential merger between Rio Tinto and Glencore. While the industry’s capital-intensive nature is driving the trend, Morgan Stanley also attributes it to miners’ willingness to pursue scale and portfolio optimisation, particularly in copper. 

Given this is happening at a time of supply deficits, the backdrop should support higher commodity prices and valuation multiples, Gabriel added.

To be sure, top miners including BHP Group and Rio Tinto still derive the bulk of their earnings from iron ore, which is feeling the effects of the collapse of the last China-led supercycle. That is motivating a push into copper M&A. Freeport-McMoRan and Antofagasta are among the few firms offering pure exposure to copper.

For some, the pace of the rally is a reason for caution. BOA downgraded the sector to underweight in Europe, citing risks from negative economic surprises. Nick Ferres, chief investment officer for Vantage Point Asset Management in Singapore, said that he has trimmed gold exposure for now.  

“I get concerned when the price of any asset moves non-linear or parabolic, that is why we are a bit cautious at the moment,” Ferres noted. “But the miners are very inexpensive. If gold remains elevated, we would re-enter or scale back up on a pullback.”

Bloomberg Intelligence sees copper remaining in deficit this year, with supply shortfalls possibly worse than in 2025. On gold, BI analysts say that bullion could push toward US$5,000 an ounce, while Goldman Sachs Group expects it at US$5,400 by end-2026 – about 8 per cent above current levels. 

“The upside drivers for commodities are now more powerful and more diversified,” said Gerald Gan, chief investment officer at Singapore-based Reed Capital Partners. “In the coming months, we plan to gradually increase our portfolio exposure to mining stocks.” BLOOMBERG