The FTSE 100’s miners have staged a monumental rally this week. The slightest sign of optimism from China has fired up the sector and Rio Tinto, Anglo American, and Glencore are among the best performers over the past week, extending a rally that started in August.
The mining sector had been on its knees after the Chinese slowed to a crawling pace this year and the Chinese authorities did little to stimulate the economy.
China is the world’s biggest consumer of natural resources and a slowdown in China is bad news for the miners. Concerns were anchored around the property market which is the destination for much of global mining companies’ offtake.
However, one could argue the Chinese slowdown has presented a rare opportunity in the shares of Rio Tinto, Anglo American, and Glencore.
The mining sector is horribly cyclical. The FTSE 100’s miners have the highest beta of the index and can be enormously volatile. It is not a sector for the cautious investor.
That said, the sector has a propensity to distribute high levels of cash to their investors during the good times. Those who buy during the downturns can find themselves enjoying bumper dividend yields when things pick up.
An appetite for risk is required to make this play and it favours investors with a longer-term outlook.
In terms of whether you have missed the boat after this week’s rally; long-term investors will have little to worry about but those hoping for a quick buck may find better opportunities elsewhere.