JPMorgan says European miners underpricing US election risk
European mining stocks could see their valuations fall by as much as 20% if US tariffs are imposed following next month’s election, and the industrial metals market is underpricing this possibility, according to analysts at JPMorgan Chase & Co.
“Metals do not appear to assign significant risk premia to trade-related outcomes, specifically higher tariffs, despite this being a potential risk mentioned by clients,” Dominic O’Kane and colleagues wrote in a note.
The bank’s analysis indicated potential downside of 10% to 20% in the fair value of major mining shares, in a “benign” scenario where base metal and iron-ore prices fall more than 10%. US tariffs were a significant factor behind the sector dropping more than 10% in 2017/18, they added. Republican candidate Donald Trump was US president at that time.
JPMorgan downgraded its ratings on London-listed Anglo American to neutral from overweight and cut Sweden’s Boliden AB to underweight from neutral. The shares fell as much as 2.1% and 2.8%, respectively.
Despite rebounding on the news of China’s stimulus measures, the Stoxx Europe 600 Index’s basic resources sub-index is still down about 6% this year, making it among the worst performing sectors in the region. It trades at 11 times forward earnings, a near 20% discount to the market.
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