Shares of some of the world’s biggest mining companies have fallen victim to a crackdown on two of Wall Street’s most powerful trades: artificial intelligence and the dollar’s decline.
Shares in big Australian miners have benefited from a lack of options for investors wanting to put their money behind the AI theme.
After hitting or near record highs a week ago, shares of BHP Group, Rio Tinto and other top miners remained in the red for much of last week, as jitters about AI spending and the rising dollar overshadowed powerful tailwinds for the sector.
For decades, stocks of major global miners have essentially been a proxy bet on China’s economy, as its infrastructure and real-estate buildout gobbles up huge amounts of iron ore, driving miners’ profits.
But the recent selloff shows how the industry’s fortunes have become increasingly tied to other forces. They include the performance of AI hyperscalers spending hundreds of billions of dollars annually on building data centers, which require huge amounts of metals.
BHP shares were steady in Sydney on Friday, but ended the week down more than 10% from the record close on June 17. Australia-based BHP is the world’s largest mining company by market value.
BHP and other top miners have made copper the centerpiece of their development plans, betting that vast quantities of the highly conductive metal will be needed not only for data centers but also for the energy networks that power them. For the first time, copper accounts for more than half of BHP’s underlying earnings.
“This shift changes the nature of BHP’s earnings base from one closely tied to Chinese property and infrastructure cycles to a longer-term demand story around electrification, AI and grid buildout,” said Justin Lin, Global
Shares of big Australian miners in particular have benefited from a lack of options for investors wanting to put their money behind the AI theme. “This drives capital flows towards BHP almost by default from investors who want some AI-linked exposure but are limited to the local market, whether by mandate or simple home bias,” Lin said.
But tech stocks have fallen sharply this week on growing fears about the massive borrowing and spending needed for data-center buildouts.
Also, the US dollar has climbed to its highest point in more than a year against a basket of currencies, boosted by expectations the Federal Reserve will raise interest rates within a few months, after new Chairman Kevin Wersh took an hawkish stance at his first rate-setting meeting.
Morgan Stanley said in a note that the stronger greenback had scared away many investors who bet on mining as debasement trades on Wall Street, with assets such as gold favored over currencies.
“Client feedback remains that a harsh surprise from the Fed was not on the market’s bingo card and until it stabilizes, miners may remain in the penalty box,” Morgan Stanley said.
The increase in demand for dollar-denominated goods is widely seen as an appreciation of the greenback, as it makes them more expensive for buyers using other currencies.
To be sure, last week’s volatility has erased only a small part of the gains made from the rally, which has seen Sydney-listed shares of BHP and Rio Tinto repeatedly hit new all-time highs this year. In London, shares of Glencore and Anglo American have also risen sharply this year.
Analysts say surging tech stocks may be vulnerable to wild swings, but key pillars of support for their rally remain.
As for mining stocks, “despite short-term volatility, the basic thesis remains unchanged,” said Darko Kuzmanovic, a senior portfolio manager in Janus Henderson Investors’ global natural resources team.
According to Kuzmanovic, in addition to AI, electrification, decarbonization and deglobalization are all positive outcomes for the mining sector.
“If you look at how these stocks have performed, every dip has been bought,” he said.
