Market Report: Miners look to China for rich growth seam

The miners raced ahead last night, with the Eurasian Natural Resources Corporation strengthening by almost 5 per cent after the Royal Bank of Scotland highlighted the prospect of further interest from sovereign buyers, particularly from China.

Given the backdrop of broadening growth trends in the country's interior, and with less than 5 per cent of foreign direct investment (FDI) so far this year focused on mining, China's investment in resources is "rapidly shifting abroad", RBS said, raising the prospect of a new wave of outward direct investment (ODI) in mining in coming years.

"With FDI to China decreasing in terms of its global market share, mining being starved of significant FDI within China and sovereign wealth assets continuing to grow, we think ODI is the solution the country needs for the mining industry," RBS said, estimating that China's ODI in mining at between $8bn and $25bn for each of the next five years. The assessment was accompanied by a number of forecast, rating and target price upgrades. As a result, ENRC gained 38p to 844p as its target was raised from 670p to 850p.

Antofagasta, which was moved from "sell"to "buy", rose by 3.7 per cent, or 26.5p, to 746.5p and Rio Tinto, which was upped from "hold" to "buy", gained 2.3 per cent, or 58.5p, at 2564p.

Overall, the FTSE 100 rose by 35.63 points to 5,024.33, while the mid-cap FTSE 250 index rose by 82.57 points to 8,982.53 as investors capitalised on recent weakness.

Credit Suisse emboldened the bulls, saying that despite signs of caution it was not time to sell equities. "Four of our eight tactical indicators for equities have flashed amber over the past week, but we do not consider this sufficient reason to downgrade equities tactically, given that we saw similar readings at the beginning of the 2002/2003 bull market," the bank's strategists said. They explained that, in the midst of "important strategic shifts", tactical indicators might "give sell signals too early".

The banking sector was in focus, with Lloyds closing up 0.21p at 94.96p and Barclays gaining 5.05p at 361.80p, as the Financial Services Authority outlined guidelines under which banks and investment companies would have to increase their holdings of cash and government bonds.

News of the measures proposed by the City watchdog followed a warning from JP Morgan that European banks might need to raise as much as $78bn over the next six months as they strive to meet regulatory demands.

Elsewhere, RSA Insurance gained 4.3 per cent, or 5.5p, to 133.2p following reports at the weekend that it had scrapped plans for a rights issue to fund a shopping spree. The news was welcomed by Cazenove, which reiterated its "outperform" stance, saying: "We do not believe equity issuance would be considered without a significant acquisition lined up and we do no believe management would entertain the idea of a deal that did not obviously enhance shareholder value."

Kingfisher, the retail empire which owns the B&Q chain, rose by almost 2 per cent, or 3.7p, to 210.5p following some words of support from Goldman Sachs, which abandoned its negative stance and moved the stock from "sell" to "neutral" on account of forecast upgrades triggered by the group's interim results.

"We have previously seen the high sector-relative valuation of Kingfisher shares as the basis for underperformance, but following a short period of [weakness] and based on our upgraded forecasts, we now believe they will perform in line with the market," the broker said, raising its target price for the stock from 220p to 238p.

Further afield, the commercial property group Land Securities closed 2p higher at 610.5p and was moved to from "hold" to "sell" by Collins Stewart. The broker highlighted the fact that Land's shares trade on a 13 per cent premium to its spot-adjusted net asset value (NAV) for the first half of the year. "The group's portfolio value would have to increase by 7 per cent from our estimated first-half portfolio value to raise the NAV to the current share price," explained the broker, which maintained a 515p target price for the stock.

Analysts at RBS undermined sentiment around the construction materials group Wolseley, which fell by 16p to 1471p after the broker repeated its "sell" rating, albeit with a revised target price of 1075p, compared to 810p previously. "Wolseley is mispriced in our view," the broker said. "We believe an earnings recovery would require record breaking operational gearing or material volume recovery.

"The new chief executive brings a clear drive for change but trading remains very poor."

On the second tier, the recruitment group Michael Page International was down 1.6 per cent, or 5.1p, at 316.1p as Exane BNP Paribas repeated its "underperform" recommendation, expressing a preference for Hays, which was 0.5p stronger at 101.1p.

"Hays still presents a balanced portfolio and is highly exposed to the first markets to recover, notably Australia and possibly the UK," the broker said, reiterating its "neutral" recommendation on the stock.