Credit Suisse: Positive outlook for commodities and regional mining stocks

Highlights
Global growth momentum has eased, but we see a recovery and not a double dip.
The outlook for commodities is positive on a 12-month plus view.
We prefer copper among industrial metals. Iron ore and coal should also remain strong.
Investors should add exposure to regional stocks exposed to our favorite commodities.

Global recovery is a positive driver for industrial commodities and regional mining stocks
The current slowing in global economic indicators is broadly in line with our expectation. It is normal to temporarily lose momentum at this stage of the cycle, as re-stocking fades, and it is also normal to see a partial reacceleration later as
credit conditions improve and replacement investment grows. While global leading indicators have slowed, they remain in positive territory (Figure 1). While economic growth is slowing from the previous unsustainably high levels, we believe the global economic recovery remains on track. Recently, the International Monetary Fund (IMF) even upgraded its forecast for global growth this year from 4.2% to 4.6%. Our global
economics team sees the US on course for just-above-trend growth of 2.75% next year. With Europe following a broadly similar dynamic, Asia will have to sustain its own demand growth and seems set to do this by tightening slower rather than faster and by structural measures, such as China’s move to higher wages and the great push west.

Commodity prices have suffered somewhat in the first half of 2010, as markets have had concerns about global growth momentum and the European sovereign debt crisis. The more leveraged mining stocks have consequently underperformed during this period. We believe that mining stocks offer value, given our confidence in the global outlook and a more positive environment for commodity prices.