Investment heavyweight Morgan Stanley (NYSE:MS) said there is a tactical opportunity in the mining sector ahead of an iron ore price bounce as it upgraded shares in Rio Tinto.
The Wall Street bank said that while China’s ‘pull’ on industrial commodities had ‘slowed considerably’, it expects a policy shift to feed through to the country’s currently struggling property sector in the second half of next year.
“We see a tactical opportunity amid reasonable valuations,” investors were told in a comprehensive sector note.
It has raised its stance on Rio Tinto to ‘overweight’ from ‘neutral’. Its price target is £52.20 a share (current price £47.57), with a ‘bull case’ valuation of £129.70.
“The shares have materially derated on the back of operating setbacks and poor iron ore prices, putting shares at their steepest discount to sector peers since the super-cycle,” Morgan Stanley (NYSE:MS) said.
In the year to date, the stock has tumbled 17%. The American bank remains ‘overweight’ on Glencore and ‘neutral’ on Anglo American.
Morgan Stanley (NYSE:MS)’s call on Rio comes just two days after JP Morgan cut its Rio recommendation to ‘neutral’ and tweaked back its forecast for the iron ore price. The former expects the metal to average US$100 a tonne, while the latter has forecast a price of US$92 for 2022.