Critical week ahead for mining companies

This week is a critical week for mining companies with major miners such as BHP Group, Glencore, Anglo American and Vale reporting earnings. These companies are together with transportation companies the closest to the epicenter of the coronavirus as China is the world’s largest consumer of commodities. Global mining companies have been lagging the global equity market over the past five years and they also had a larger drawdown during the worst week of the coronavirus in terms of sentiment. We will be closely watching the outlook in these earnings releases and comments during the conference calls. Like the energy sector we have a negative long-term view on the mining sector as the return on capital is lower than the cost of capital and in the short-term the coronavirus will only worsen the demand picture.

Another important earnings this week is HSBC reporting tomorrow as the company has high exposure to Hong Kong and Asia in general. The key focus will be on the conference call with analysts likely asking question about loan quality and demand given the coronavirus outbreak in China but also the almost complete collapse in visitors to Hong Kong. Tomorrow’s earnings from Walmart are also interesting for two reasons; 1) their e-commerce efforts have ramped up and is beginning to compete on par with Amazon which is beginning to change the landscape for Amazon for decades have dominated US e-commerce market, 2) Walmart is still a good barometer on retail spending so Walmart earnings and outlook give clues to consumer spending which is important as the US economy is a consumer-driven economy.