Australian miners are significantly boosting the local sharemarket, offsetting declines in other sectors. A resurgence in miners’ earnings forecasts has been pivotal in driving the market upwards. UBS equities strategist Richard Schellbach highlighted that upward revisions in the mining sector have compensated for earnings drops across various other sectors, overshadowing profit growth in major banks. This surge is underpinned by robust commodity prices, including iron ore, copper, and gold.
According to Schellbach, the current market dynamic is less about Chinese economic growth and more about reduced bearish sentiment. While the Chinese economy has stabilised, analysts are reassessing previous pessimistic outlooks. Furthermore, US dollar weakness is benefiting Australian miners, as it prompts capital outflows from the US and increased investment in non-US assets, including Australian mining giants like BHP. BHP Group is a leading global resources company, engaged in the exploration, development, production, and marketing of commodities such as iron ore, copper, and petroleum. Rio Tinto is a multinational mining company that focuses on the production of materials essential to human progress, such as iron ore, aluminium, copper, and minerals.
This trend is creating a favourable environment for Australian miners, with stronger US dollar commodity prices, a healthier global growth outlook, and capital moving away from US assets. Schellbach suggests that without the miners’ strong performance and earnings per share forecasts, the ASX200 would not be trading near its all-time high of 9000 points. Conversely, a decline in miners’ earnings would likely leave the Australian market lagging behind other developed equity markets, potentially closer to 8000 points.
Despite the overall market strength, many active equities fund managers may not have fully capitalised on the miners’ boom, as their portfolios may still be weighted towards software companies like WiseTech Global and Xero. These fund managers maintain a strong belief in the long-term outlook for software, possibly overlooking the significant revaluation in the mining sector.
