Mining stocks slipped on Tuesday, as weak earnings from BHP Billiton and Glencore Xstrata sent the sector lower. Analysts said miners were now the cheapest they have been in 30 years, relative to the market, and were set to bounce back when interest rates begin rising.
The majority of global miners are in correction territory year-to-date, due to the slowdown in the Chinese economy and the slump in commodity prices. However, this "severe de-rating" has not hit earnings to the same extent as share prices, making mining stocks a compelling buy, according to Henry Dixon, fund manager at Matterley Asset Management.
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"Miners had a torrid time in the first half. Mining has been the worst performing sector this year, leaving it as cheap relative to the market as we can find," said Dixon, who was confident mining stocks would be the first to benefit from the climb in bond yields that will follow the Federal Reserve's tapering off of its stimulus program.
Dixon said he had increased his exposure to mining stocks in recent weeks. "Obviously a lot has been made of the move we have seen in bond yields, and with history in mind, and rising bond yields, it is actually the mining sector that stands tall as one of the best under this environment, with the key being a little bit more growth in the system," he said.
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British-Australian multinational Rio Tinto was Dixon's pick of the sector, as it has committed to trimming its capital expenditure by around $5 billion over the next 2 years, after a decade of "chronic" overspending.
"The consensus and fear around emerging markets [EMs] is at its height right now. I think EMs, relative to the incredibly depressed expectations, can appease investors in the next 6 months, so within that, I can see the more capital conservative mining sector actually finding a bit of favor… their earnings picture is actually getting a hell of a lot easier year-on-year," he added.
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