ASX 200 resource share moves to “overweight” on LSE by Morgan Stanley
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S & P / ASX 200 Index (ASX: XJO) Resource stocks benefited from the surge in commodity prices.
While metals like gold, copper and iron ore have slipped from their multi-year (or even all-time high) highs, they remain well above their trading level around the same time last year.
For example, iron ore, Australia’s main export source, is still trading at US $ 207 per tonne.
And it helped convince Morgan stanley (NYSE: MS) to upgrade its outlook for an ASX 200 resource share listed on multiple international exchanges.
In this case, the upgrade is from Morgan Stanley’s London office.
How much of an ASX 200 international resource has Morgan Stanley upgraded?
Morgan Stanley is already overweight the listed ASX 200 BHP Group Ltd. (ASX: BHP). These stocks, of course, trade on the Australian Securities Exchange.
However, BHP shares are listed on major stock exchanges across the world including the London Stock Exchange (LSE) where they are listed as BHP PLC Group (LON: BHP). And yesterday (Australian time overnight), Morgan Stanley overweighted BHP Group PLC.
As the Australian Financial Review note, London office analyst Alain Gabriel believes that the offer of BHP shares “generous capital returns“.
Part of his optimism on BHP is based on current iron ore prices, in which case Gabriel expects “that he will trade on a 23% free cash flow return in 2022. Even in the baseline scenario forecast, it’s 14 percent.
According to Gabriel (quoted by AFR):
Equities have underperformed their peers by 11% on average since the start of the year and imply a [long-term] iron ore price of US $ 71 per tonne versus a spot price of US $ 207 per tonne.
Gabriel raised his target price to 2,360 pence, from 2,110 pence.
BHP PLC closed yesterday at 2,065 pence, implying a potential rise of 14%.
A word on international lists
It should be noted that BHP shares do not move in the same way on the different stock exchanges where the company is listed. This is in part due to currency fluctuations and the dynamics of demand in a given market.
However, BHP’s listed shares in London and Australia tend to move quite tightly.
Over the past 5 days, for example, London shares of BHP are down 2.1%, while on the ASX 200 they are down 2.2%.
Over a full year, the difference is larger, with BHP stocks gaining 23% on the LSE while they gained 33% on the ASX 200.