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FUND VIEW-UK mining stocks set to stay sizzlers - Aegon
Wed May 21, 2008 5:47pm IST Email | Print | Share| Single Page[-] Text [+]
By Rebekah Curtis

LONDON, May 21 (Reuters) - Surging prices in most metals will keep aflame a red-hot rally in UK-listed mining stocks for the second half of 2008, but a worsening economic climate will stifle consumer-related stocks, a fund manager at Aegon said.

FUND VIEW-UK mining stocks set to stay sizzlers - Aegon
Wed May 21, 2008 5:47pm IST Email | Print | Share| Single Page[-] Text [+]
By Rebekah Curtis

LONDON, May 21 (Reuters) - Surging prices in most metals will keep aflame a red-hot rally in UK-listed mining stocks for the second half of 2008, but a worsening economic climate will stifle consumer-related stocks, a fund manager at Aegon said.

Investment manager Stephen Adams picked Eurasian Natural Resources (ENRC) (ENRC.L: Quote, Profile, Research) as his favourite stock for the coming three to six months as he said ferrochrome prices are set to power ahead.

The manager of Aegon's 165 million pound UK equity fund advised stock-picking in the sector, however, favouring precious metals platinum and gold as well as bulk commodities such as coal and iron ore, over base metals such as copper.

Diversified miner Rio Tinto (RIO.L: Quote, Profile, Research), which BHP Billiton (BLT.L: Quote, Profile, Research) is trying to buy, is one of his largest holdings, because "the share price doesn't discount the possibility of a higher offer coming in," he said.

BHP Chief Executive Marius Kloppers will not rule out adding cash to the company's all-share bid for Rio worth around $135 billion.

Adams's other favourite picks in the sector include Aquarius Platinum (AQP.L: Quote, Profile, Research), Eastern Platinum (ELRq.L: Quote, Profile, Research) and gold miner Centamin Egypt (CEY.L: Quote, Profile, Research).

Outside the mining sector, Adams also favours oil firms Dana Petroleum (DNX.L: Quote, Profile, Research), and especially India-focused ones such as Great Eastern Energy Corp (GEECq.L: Quote, Profile, Research) and Hardy Oil (HAOG.L: Quote, Profile, Research).

"There's a lot to be said for (the Indian) economy's requirements for oil, gas and power. They are in fairly short supply there and the supply/demand situation looks good."


AVOID CONSUMER-RELATED STOCKS

Adams steers clear of UK consumer-sensitive sectors, however, such as housebuilders, high street retailers and mortgage banks.

"We think the housing market looks particularly vulnerable and it looks like the UK consumer's wallet is going to continue to get squeezed," he said.

A sprinkling of banks have made it into the fund, however, include HSBC (HSBA.L: Quote, Profile, Research) and Standard Chartered (STAN.L: Quote, Profile, Research), due to their broad exposure to international markets.

Adams recently added Royal Bank of Scotland (RBS) (RBS.L: Quote, Profile, Research) to the portfolio due to increasingly appealing valuations.

"It's still an underweight position but ... we've just started to dip our toe in that particular water," he said of RBS.

"There is still the potential for further downgrades for all the UK domestic banks as we move through tougher economic times in the United Kingdom. But even allowing for some further downgrades, (RBS's) valuation is starting to become more appealing."

As investors brace themselves for a flurry of earnings downgrades, Adams opted for stocks such as BAE Systems (BAES.L: Quote, Profile, Research), and Scottish & Southern Energy (SSE.L: Quote, Profile, Research) due to their good earnings visibility.

"In the market as a whole there's going to be a plethora of earnings downgrades ... we've been seeking stocks with earnings resilience," he said.

"In the next three to six months the UK market could be vulnerable to further falls," he added. "There's probably a brighter future out there but probably not until the start to middle of 2009."

Adams also said food retailer Tesco (TSCO.L: Quote, Profile, Research) would hold up well in an increasingly tough inflationary climate.

"There are the first signs of food price inflation which will be good for them. A food retailer should display some resilience in tougher economic times, historically that is what's happened." (Editing by Quentin Bryar)
Research) as his favourite stock for the coming three to six months as he said ferrochrome prices are set to power ahead.

The manager of Aegon's 165 million pound UK equity fund advised stock-picking in the sector, however, favouring precious metals platinum and gold as well as bulk commodities such as coal and iron ore, over base metals such as copper.

Diversified miner Rio Tinto (RIO.L: Quote, Profile, Research), which BHP Billiton (BLT.L: Quote, Profile, Research) is trying to buy, is one of his largest holdings, because "the share price doesn't discount the possibility of a higher offer coming in," he said.

BHP Chief Executive Marius Kloppers will not rule out adding cash to the company's all-share bid for Rio worth around $135 billion.

Adams's other favourite picks in the sector include Aquarius Platinum (AQP.L: Quote, Profile, Research), Eastern Platinum (ELRq.L: Quote, Profile, Research) and gold miner Centamin Egypt (CEY.L: Quote, Profile, Research).

Outside the mining sector, Adams also favours oil firms Dana Petroleum (DNX.L: Quote, Profile, Research), and especially India-focused ones such as Great Eastern Energy Corp (GEECq.L: Quote, Profile, Research) and Hardy Oil (HAOG.L: Quote, Profile, Research).

"There's a lot to be said for (the Indian) economy's requirements for oil, gas and power. They are in fairly short supply there and the supply/demand situation looks good."


AVOID CONSUMER-RELATED STOCKS

Adams steers clear of UK consumer-sensitive sectors, however, such as housebuilders, high street retailers and mortgage banks.

"We think the housing market looks particularly vulnerable and it looks like the UK consumer's wallet is going to continue to get squeezed," he said.

A sprinkling of banks have made it into the fund, however, include HSBC (HSBA.L: Quote, Profile, Research) and Standard Chartered (STAN.L: Quote, Profile, Research), due to their broad exposure to international markets.

Adams recently added Royal Bank of Scotland (RBS) (RBS.L: Quote, Profile, Research) to the portfolio due to increasingly appealing valuations.

"It's still an underweight position but ... we've just started to dip our toe in that particular water," he said of RBS.

"There is still the potential for further downgrades for all the UK domestic banks as we move through tougher economic times in the United Kingdom. But even allowing for some further downgrades, (RBS's) valuation is starting to become more appealing."

As investors brace themselves for a flurry of earnings downgrades, Adams opted for stocks such as BAE Systems (BAES.L: Quote, Profile, Research), and Scottish & Southern Energy (SSE.L: Quote, Profile, Research) due to their good earnings visibility.

"In the market as a whole there's going to be a plethora of earnings downgrades ... we've been seeking stocks with earnings resilience," he said.

"In the next three to six months the UK market could be vulnerable to further falls," he added. "There's probably a brighter future out there but probably not until the start to middle of 2009."

Adams also said food retailer Tesco (TSCO.L: Quote, Profile, Research) would hold up well in an increasingly tough inflationary climate.

"There are the first signs of food price inflation which will be good for them. A food retailer should display some resilience in tougher economic times, historically that is what's happened." (Editing by Quentin Bryar)