For the first time in three decades, geopolitical risks are causing a jump in mining stocks rather than sales.
The change marks the sector’s shift from a bet on industrial growth to an investment strategy linked to security, supply chain management, and national energy, according to Jefferies analysts.
The reversal indicates a major shift in global markets. Where political risks once meant less growth prospects and lower demand for goods, investors are increasingly treating tensions as constraints on physical supply – and as a reason to own the assets that produce them.
Over the past six months, funds in the S&P 500 (^GSPC) have returned about 8%. During the same period, the US mining sector (XME) has gained 48%, while globally, the sector (PICK) has increased by 57%.
Historically, minerals have been linked to global growth, leaving them vulnerable in times of uncertainty. Trade wars, military conflicts, and sanctions tend to tighten financial conditions, slow out-of-market demand, and slow capital spending — all of which are bad for the use of steel and mining companies.
That relationship fell apart last year. The war in Ukraine and the White House’s tax administration have disrupted the flow of global metals, while tensions in the Middle East have raised risks over energy and transportation. The ongoing trade war between the US and China has resulted in export controls on key minerals and industrial technologies.
New discoveries are being stifled by strict environmental laws in the West and development movements in Latin America and Africa – such as in the Democratic Republic of Congo, which controls three-quarters of the world’s cobalt mined.
At the same time, governments are forcing to protect the access of the houses to the metals connected to defense, energy conversion, and electrical infrastructure.
“The risk to the political environment no longer reflects falling spending and instead reflects tightening, foreign policy, sanctions, and restrictions,” Jefferies analysts Christopher LaFemina and Giovanni Holmes wrote in a recent consumer note. It “raises the minimum wage and effectively reduces the cost of miners.”
Mining is also benefiting on two fronts from the AI boom.
The widespread cycle of “AI scare trading” has driven investors into soft assets – such as software, real estate, and financial services – and into those tied to energy, materials, and physical production.
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