UBS has today presented its analysis of the correlation between movements in iron ore prices and the mining sector index. BHP Billiton, Rio Tinto and Fortescue Metals make up 80% of this index, with iron ore earnings making up at least 50% of each company. The mining sector has experienced a positive bounce recently, driven by higher commodity prices and an improved outlook on the Chinese and global growth cycle. In its analysis, UBS concluded that the mining sector index does closely follow the movements of the iron ore price. The only exception occurred when mining stocks performed well whilst the iron ore price fell from March to May 2009, but this occurred against the backdrop of a big recovery in equities. With commentators holding a bearish view on iron ore prices over both the next 3 and 12 months, the outperformance of mining stocks looks set to end. (VIEW LINK)
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