Clearly, the concern about global growth has been a strong headwind for the base metal sector since mid-2018. From this point, we see a pathway for base metal equities to move higher in H2/19 as the balance of risks starts to move in their favour. We believe that there are three key factors that could combine to drive mining stocks higher: (1) a weaker U.S. dollar; (2) a continuation of the cooling down of U.S./China trade war rhetoric; and (3) Chinese government stimulus measures feeding through to a more stable metals demand picture.

Within the base metal space, our preferred commodity is copper. Given the importance of emerging markets demand for copper, the fact that Peoples Bank of China and the Reserve Bank of India have plenty of ammunition to stimulate growth, we are confident that the copper market will rebound.

The chart below highlights the CFTC commitment of traders positioning in copper. The Blue line is the net speculative position, the orange line is the net commercial position in copper and the green line is copper price. Right now, speculators are at their biggest net-short position since 2016 while commercial traders are carrying a significant net-long position. Similar extreme opposite positions in the COT have historically been consistent with bottoms in copper (see vertical dashed red lines).

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