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Citigroup reverses bearish view Western European mining stocks, ups BHP to "buy"

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[LONDON] Citigroup turned bullish on the Western European-listed mining sector on Monday saying a brighter outlook for commodity prices would mean cash flow and earnings upgrades are likely to follow.

"A stronger cyclical US backdrop, coupled with improved supply and demand fundamentals could keep industrial commodity prices buoyant in our view," said Citigroup analysts in a note.

European metal producers, after a period of sharp capex cuts and deleveraging, have rushed back on investor's radars after a stellar run in 2016. Anglo American, up more than 300 per cent this year, are poised to finish 2016 as the best performing major European stock.

The European basic resources sector is up 60 per cent this year as sentiment turned following stabilization in China's economy.

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"We think the mining sector is now back to a sufficient size which can't be ignored by fund managers, which raises the big question as to what to do in 2017," said Citi's analysts.

Citigroup analysts upgraded BHP Billiton to a "buy", a two-notch revision from a prior "sell" rating. The US bank upgraded Glencore to "buy" from "neutral" and Rio Tinto and Anglo American to "neutral" from "sell".