JPM’s Gregson: China is past the worst and miners stand to benefit


JP Morgan fund manager Neil Gregson believes China is past the worst of stuttering growth but admits this is the longest period of underperformance he can remember for the mining sector.

The lead manager of £970m JP Morgan Natural Resources fund points to positive trade data from China as giving the mining sector a boost and does not believe miners are necessarily suffering from the end of a ‘super cycle’ in commodities.

The mining sector has suffered share price decline for over two years. The FTSE All Share Mining index, for example, has fallen by 36 per cent between 12 December 2010 and 9 August 2013.

Gregson says: “Super cycle or no super cycle, the psychology in the sector has done what it normally does. In particular, this is the longest period I can remember of underperformance in the mining sector and the obvious thing is to put this down to China.

“I believe we are past the worst and that we have seen the bottom.”

Speculation over slowing economic growth in China has damaged investor sentiment in recent months. July’s Bank of America Merrill Lynch Global Fund Manager Survey showed asset allocators rate a so-called hard landing in China and a subsequent commodity collapse as their biggest tail risk,with 52 per cent citing this as their largest concern.

However, Gregson sees that demand will still come from China in terms of ongoing urbanisation, but on a smaller scale from its infrastructure-fueled boom of the past – with a trillion dollar investment replacing a multi-trillion dollar investment.

Instead Gregson, who can see China developing its demand for other areas, says: “You could have a bull trip and a bear trip to China. The important thing is we do not base our views on double digit growth anymore on the commodity side, but instead on areas where there are supply side issues such as aluminium, copper and diamonds.

“We think about a much lower growth environment for steel and cement, even though infrastructure spending is still taking place.”