Lonmin plc + Rio Tinto plc: Conviction Buys at Citigroup; Japanese stimulus disappointment sees RIO and LMI open lower today

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Category: Share Price Drivers

Published on Tuesday, 22 January 2013 09:47

Written by Will Peters

Lonmin Plc (LON:LMI) and Rio Tinto plc (LON:RIO) have both opened in the red this morning - LMI is a hefty 2.36 down at 334 and RIO is 1.14 pct in the red at 3514.

Both stocks have been hit by the disappointment emanating from Japan today (more of that below) but we look at a recent call by analysts at Citigroup which names the two stocks as Conviction Buys.

Lonmin has earned the accolade after analysts noted the firm had "turned the corner". According to the firm Lonmin's balance sheet is vastly improved and the mining and treatment efficiency improvements demonstrated in the past three years will continue into 2013 and 2014.

Also providing momentum behind the stock is an upgrade to Citigroup's platinum price estimate to US1,700, while gold has been trimmed to US$1,675 from US$1,749.

Analysts expects a 94,000 ounce deficit in the market for platinum in 2013, due mainly to spill-over effects of industrial unrest in South Africa during 2012 and mothballing of supply by Amplats and Aquarius, though this shortfall may prove to be short-lived as supply from other sources picks up.

Japan ensures Tuesday starts off poorly

Markets are correcting lower this morning as hopes of further central banking stimulus in Japan are dashed, for the time being that is.

After a two-day meeting, the BoJ set a 2.0% inflation target and pledged to embark on a Fed-style unlimited asset purchase programme. Meanwhile, the central bank left its benchmark rate unchanged at the prior range of zero to 0.1%.

However, the promised increase in asset repurchases will not come until January 2014, later than at least some had hoped.

Credit Suisse see FTSE 100 under-performing this year

Somewhat ironically, strategists at Credit Suisse this morning announced their decision to trim their overweight position in UK equities to pay for their recent upgrade to Japan.

Credit Suisse said: "The FTSE 100 is a defensive market (by sector composition) and thus tends to underperform when economic lead indicators and global equity markets rise (we remain positive on equities and the global economy on a three- to six-month view)." Nevertheless, they continue to overweight the UK.

Global unemployment concerns

World unemployment could top record levels this year and continue rising until 2017, the International Labour Organization (ILO) said on Tuesday in its annual employment report.

2009 currently stands as the worst recorded year for world unemployment, with 198 million people across the globe without work.

In its 2013 Global Employment Trends report, the ILO forecasts unemployment numbers will rise by 5.1 million in 2013 to reach 202 million, topping 2009's record.