(Clarifies that it is a S&P Capital IQ list in the first paragraph)
A negative view of the materials sector prompts S&P Capital IQ to remove Rio Tinto from its list of “power picks”, replacing it with aerospace and defence company EADS.
EADS is set to benefit from demand from emerging markets, and ascends to the list at a time when the mining sector looks less attractive than it did at the beginning of the year, as the U.S. Federal Reserve considers slowing its “quantitative easing” programme, hitting commodity prices.
“Mining stocks are considerably less attractive now than they were a few months ago. There are two real reasons for that. One is QE tapering, as commodity prices were well buoyed by a lot of speculative liquidity going into commodities via the derivatives markets. That’s probably over,” Roger Hirst, head of EMEA equity research at S&P Capital IQ, said.
“It’s also become very clear that the major mining companies have now invested enough to mean that supply is rising more rapidly than demand.”
The rest of the list remains unchanged, having outperformed the STOXX Europe 600 by 0.9 percent so far this year. This outperformance has narrowed since concerns over the prospective slowing of asset purchases by the Fed has seen volatility spike to 10-month highs.
“Our current picks have performed very well against the market, and part of that is that we’re trying to pick the quality names in each sector, picking those that have management, product and balance sheet quality, as well as the ability to grow, all for a reasonable price,” Hirst said.
“Quality stocks have come under surprising pressure in the recent correction, but we expect them to pull ahead of the market again in H2, as conditions normalise.”
The other “power picks” are Centrica, Carlsberg, Essilor , Sanofi, ASML, Telenor Prudential , BNP Paribas and Julius Baer
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