Gains far surpass chips and the Mag 7, making global mining stocks the "top allocation target" for fund managers.

Global mining stocks are rapidly leaping to the top of fund managers’ allocation lists, driven by surging demand for metals due to the AI boom and tight supplies of key minerals. The industry is showing signs of entering a new "supercycle."

Since the beginning of 2025, the MSCI Metals & Mining Index has risen by nearly 90%, dramatically outperforming the semiconductor sector, global banking, and the seven giants of tech stocks. The rally shows no sign of slowing, as the robust development of robotics, electric vehicles, and AI data centers continues to push metal prices higher.

Copper, a key raw material for the energy transition, has soared 50% over the same period. Beyond copper, analysts maintain bullish views on a range of minerals including aluminum, silver, nickel, and platinum. Meanwhile, gold, which has repeatedly hit historic highs due to concerns over US monetary and fiscal policies and geopolitical risks, is expected to continue to benefit.

This stellar performance marks a significant reversal in market sentiment. Previously, the sector was shunned due to commodity price volatility and concerns about slowing growth in China, the largest consumer of metals. Now, as Beijing pledges economic support measures such as interest rate cuts, fund managers who had shifted into tech and financial stocks are reassessing the value of mining stocks, viewing them as core assets in their portfolios.

Shift in Allocation and Structural Changes

The logic of commodity investment is fundamentally changing. Commodities like copper and aluminum are becoming less correlated with the economic cycle, gradually evolving from short-term trades dominated by global growth speed into structural investment targets. Dilin Wu, research strategist at Pepperstone Group Ltd., points out that mining stocks have quietly shifted from "dull defensive sectors" to "necessary anchors for investment portfolios," becoming one of the few sectors capable of capturing changes in monetary policy and addressing increasingly volatile geopolitical dynamics.

Additionally, investors are gaining exposure to the AI theme by purchasing metal assets, further fueling the trend of buying on dips. According to Bank of America’s monthly survey, European fund managers’ net overweight in the sector has reached 26%, a four-year high, though still below the peak of 38% in 2008.

Valuation Discount Creates Margin of Safety

Despite recent sharp gains, mining sector valuations remain low. The Stoxx 600 Basic Resources Index trades at about 0.47 times forward price-to-book ratio relative to the MSCI global benchmark. This level is about 20% below its long-term average of 0.59 times, and far below previous cycle peaks above 0.7 times.

The analyst team at Morgan Stanley led by Alain Gabriel believes that despite a significant increase in the strategic importance of natural resources, this valuation gap persists. Given the current period of supply shortages, this environment should support higher commodity prices and valuation multiples.

M&A Wave and “Buying Beats Building”

The capital-intensive nature of the industry is driving mining companies to prefer M&A over launching new projects to expand capacity. Morgan Stanley notes that miners are focused on scale advantages and portfolio optimization, especially in the copper sector. Several mergers and acquisitions are currently underway, including Anglo American Plc’s acquisition of Teck Resources Ltd., and a potential merger between Rio Tinto Plc and Glencore Plc. This “buying beats building” trend has become the industry’s main theme.

However, top miners such as BHP Group and Rio Tinto still mainly rely on iron ore profits, which continue to be impacted by the end of the China-led last supercycle. This further motivates these companies to shift towards copper M&A transformation. Currently, Freeport-McMoRan Inc. and Antofagasta Plc are among the few companies offering pure copper exposure.

Divergent Institutional Views and Price Outlook

Despite upbeat market sentiment, some institutions remain cautious. Bank of America recently downgraded its rating on the European mining sector to “underweight,” citing risks of negative economic surprises. Nick Ferres, Chief Investment Officer at Vantage Point Asset Management, said he is concerned about the nonlinear or parabolic asset price increases, having cut his gold exposure for now but would consider re-entering on a price pullback, as mining stocks remain very cheap.

On future price trends, Bloomberg Industry Research (BI) expects copper’s supply shortage to persist this year, with the gap possibly worse than in 2025. For gold, BI analysts think prices could approach $5,000 per ounce, while Goldman Sachs expects prices to reach $5,400 by the end of 2026, about 8% above current levels. Gerald Gan, Chief Investment Officer of Singapore’s Reed Capital Partners Ltd., said the momentum behind commodity gains is now stronger and more diversified, planning to gradually increase mining stock exposure in the portfolio over the coming months.

Risk Warning & DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice and does not take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinion, viewpoint, or conclusion in this article suits their particular circumstances. Investment is at your own risk.