We downgrade ENRC and Antofagasta
to Underweight (V) on price performance
􀀗 We see more room for short term
correction and recommend waiting to
get back into selected names
􀀗 We have no top picks at this time; our
highest conviction Underweight ideas
are ENRC, Norsk Hydro and KGHM
This quarter we feel more optimistic on the metals outlook
than we did at the time of our last report back in January: we
believe base metals prices have troughed and started to
recover, as most metals have de-stocked and demand seems
unlikely to fall further than it has already.
However, in our view the market has overplayed good news,
bringing valuations back to almost pre-crisis levels. Thus
despite being more positive on the outlook, we no longer see
attractive value in the sector. We believe that a share price
correction is likely to happen at some point, which will give a
good chance to get back into selected names.
The recent rally has pushed the prices of most of our past
favourites – Antofagasta, ENRC and Vedanta – well above
our comfort zone: we downgrade Antofagasta and ENRC to
Underweight (V). We upgrade Boliden to Neutral (V) as
copper and FX movements should move the stock now that
financing has been clarified.
We also introduce a ‘dislocation barometer’ as a tool to
identify the most ‘overbought’ and ‘oversold’ stocks.