If the only mining you’re investing in at the moment is Bitcoin, it could be a good time to look again at conventional mining stocks and metals.
These are an important component in emerging markets like the huge and growing Chinese economy, which is showing signs of being ready to return to faster expansion in the near future.
Mining as a whole is approaching a Goldilocks moment according to Barclays, as China’s economy improves, the US-China trade war eases, and the US Federal Reserve adopts a more dovish policy on interest rates.
In the first quarter of 2019 the mining sector performed strongly, with Morningstar reporting increases of 24% for BHP Group and 38% for Rio Tinto, both mining companies with global activities.
But with the prospect of even more positive performance as the improving Chinese economy translates into higher demand for metals, mining stocks seem to be well worth holding at least for now, in anticipation of a surge in the second half of the year.
Why are mining stocks set to surge?
The factors mentioned above are combining to create the Goldilocks conditions needed for mining stocks to surge over the coming three to six months:
- The US Federal Reserve has said it is unlikely to raise interest rates in 2019, and probably only once in 2020, leading to a weaker dollar and a potential rise in commodities prices.
- The Chinese government has taken stimulus measures in 2019 that should trigger growth in the nation’s economy, which in turn means more domestic spending in sectors that contribute to metal demand.
- A potential trade deal between the US and China could help to calm the turbulent waters seen between the two under President Trump so far – and more free trade between two of the biggest economies in the world is good news on a global basis.
With all of these elements sliding into place at the same time, mining and metals are facing near-perfect trading conditions in the months ahead, and barring any unexpected shocks or broader economic turbulence, that should translate into high demand and high prices.
Which metals are set to surge?
The sectors performing well in China include infrastructure but not housing – and that’s significant in terms of the types of metal that should see demand in the latter half of 2019 and beyond into 2020.
Domestic construction uses copper for electrical wiring, so a subdued Chinese construction sector could mean copper fares less well in the remainder of this year.
Meanwhile, infrastructure typically relies more heavily on steel, which means good news for iron ore mining and steelmaking stocks.
And because steel is an alloy, iron is not the only metal to thrive when demand for steel is high.
Metal stocks including cobalt, nickel, tin and zinc all stand to benefit from rising demand, which should in turn translate into rising prices for each of them.
How to invest in metals and mining
There are many different ways to invest in metals and mining, and remember that these are materials that are often extracted by multinational brands and exported to economies other than the one in which they are processed and refined.
A global strategy is therefore sensible, even in a Goldilocks moment such as the one currently being seen in China.
One option is to invest in China-specific metals and mining stocks, while also putting a proportion of your total investment fund into international and global mining-focused funds too.
The BRIC nations – especially Brazil, China and India – tend to have a heavy mining and commodities focus, so again it may be worth considering BRIC-centric funds and ETFs if you want to concentrate your investment into these economies in particular.
Other strong mining economies include Australia and some African nations, including South Africa, although the specific metals and minerals mined in each will vary.
Put precious metals in the mix?
Finally, you might want to consider a mix of base metals and precious metals if you want to capitalise on the broad range of values available within the mining sector.
While precious metals trade at many times the price of base metals, they are also many investors’ preferred ‘store of value’ with a strong likelihood of growth over the long term.
This could make them a worthy addition to your portfolio if you feel the impending mining surge will be seen across the board from base metals right through to the most desirable commodities like palladium and gold.