BHP, Fortescue and Rio Tinto reverse Monday's gains
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More news: Mining majors BHP, Fortescue and Rio Tinto fell on the ASX, reversing gains made on Monday.
BHP, Fortescue and Rio Tinto were all down around 2.7% by 1pm AEST. Each one finished finished higher on Monday after iron ore prices surged as much as 10.6% on the back of a boosted demand outlook in China.
Materials was the worst performing sector by Tuesday lunchtime, down 2.19%, as the wider market lost 0.76%.
Citi analysts said they saw similarities in recent stimulus measures in China with those in 2016, but only saw limited upside for BHP.
Citi sees little upside in BHP after recent run-up
The news: Citi analysts see similarities in recent stimulus measures in China with those in 2016, but see limited upside impact for BHP after the recent rally in the mining giant’s shares.
The numbers: BHP shares last traded at $45.96 and are up nearly 15% over the last five sessions, reversing an extended period of underperformance.
Citi has retained a ‘buy’ rating on the stocks, but has kept its 12-month price target at $46.
The context: Last week, China pledged more fiscal spending to meet the country’s 5% growth target, raising expectations for fresh stimulus measures.
Citi analysts noted that China’s monetary conditions had similarly loosened sharply from mid-2015 to mid-2017, which resulted in BHP shares rising nearly 50%.
However, the relative valuations for BHP today are much higher than in 2016, with the stock’s price to book ratio currently at 3.4 times vs 1.1x in 2016.
What they said: “The starting point for sustained mining sector outperformance today is very different to the aggressively oversold situation the miners found themselves in during early 2016,” the analysts noted.
The source: Citi research
