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It certainly took some of us by surprise.
At a time when banks are too scared to lend to one another, never mind anyone else, Rio Tinto (RIO) announced it had raised £20 billion to fund its takeover of Canadian aluminium giant Alcan. But it seems that where the deal is deemed low risk, and the sector solid, there’s money ready to invest.
And right now, there’s no more solid industry than mining.
‘We are going into a growth phase at BHP Billiton in terms of petroleum, copper, nickel and this is just reminding everyone that it’s coming,’ David George, a resources analyst at JP Morgan tells Reuters. ‘We’d have to rate it as a pretty strong result.”
At first glance, BHP may sound rather overconfident in declaring that Asia is more than capable of taking up the slack from a slowing
But BHP has done a survey of its biggest customers. And they’ve found that while the
As is the fact the Chinese Central Bank just raised rates for the fourth time this year, in order to cool domestic demand. This at a time when the world’s central banks fret over whether they shut cut rates to ward off an economic slump. So even if
In fact, the sub-prime fallout is likely to have a negligible effect on commodities. According to Goldman Sachs, investors are unlikely to hold large positions in both sub-prime and commodities. So when an investor in sub-prime starts looking for cash to fund his heavy losses, it’s doubtful that he will have to flog significant holdings in commodities to do so. This “reduces the likelihood of contagion to the commodity markets,” the investment bank said back in July. “Commodities have outperformed and still have upside from here.”
And there’s one company better suited than any other to benefit. Down from a high of 1553p last month, at the current price of 1365p, BHP shares look exceptionally cheap on a P/E of 10. That’s attractive compared to the rest of the FTSE 100, even though it is positioned for growth.
“We have no doubt that this is a company with exceptional growth potential”, wrote JPMorgan Equities Ltd. analyst Ross Gardiner in a recent note. ‘It has identified $70 billion of projects that could be brought on stream.” BHP is planning a $5billion expansion of its Olympic Dam mine in
The broad nature of its business across areas such as copper, coal and even petroleum also means it was one of the most diversified plays on the market – and therefore defensive.
Cheap, growth orientated and defensive, there probably isn’t a better stock on the
Turning to the wider markets…
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European markets:
US markets: Dow Jones Industrial Average – 13,235 (-0.25); S&P 500 – 1,462 (-1.57); Nasdaq – 2,541 (-11.10).
Crude oil: $69.66. Brent spot: $68.83.
Gold $656.90. Silver: $11.59.
Currencies: pound/dollar: 2.0027; pound/euro: 1.4731; dollar/euro: 0.7353; dollar/yen: 115.8900.
And our recommended articles for today…
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– The rapid growth of Chinese industrial production has prompted concerns of ‘overheating’ at home and worries over slipping safety standards abroad. If industrial production cools in the coming months – and it looks increasingly likely that it will – are there any other sectors of the Chinese economy worth investing in? To find out, read: Is China’s red-hot growth beginning to cool?
Two attractive opportunities in the plastic surgery sector
– With operations becoming cheaper, quicker and safer, cosmetic surgery has crept out of the realm of the weird, rich and famous and onto the radar of the everyday consumer. For two ways to invest in this $20bn market, see: Two attractive opportunities in the plastic surgery sector