* Mining stocks began outperforming late 2016
* Fundamentals stronger for mining versus oil - analysts
* European oil vs mining, monthly returns reut.rs/2jGqkBV
* BP, Statoil shares hit by earnings disappointment
By Vikram Subhedar and Barbara Lewis
LONDON/CAPE TOWN, Feb 7 Mining stocks are
outpacing oil-related peers in a "reflation rally" sparked by
U.S. President Donald Trump's election and the outperformance
will last for at least another year if history is a guide.
Investors have flocked to sectors closely geared to the
global economic cycle and the shift gained momentum in November
after Trump's victory inspired expectations for boosts to
manufacturing, infrastructure spending, and global growth.
While both energy and mining stocks rose, the latter charged
higher in the second half of the year led by bellwethers such as
Anglo American and Glencore, in stark contrast
to a dismal 2015. Since October last year, the mining sector has
easily outperformed the energy stocks on monthly returns.
"Our UK PMs (portfolio managers) hold miners in preference
to oil majors based on prospects for better dividend growth and
earnings revisions, which are the key fundamental drivers on a
two to three year horizon," Frances Hudson, global thematic
strategist at Standard Life Investments, said.
Since 1980, there have been four spells when European mining
stocks made bigger gains than energy majors, such as BP
and Shell and each lasted at least a year. That
suggests the current outperformance that began late in 2016 has
months to run.
GRAPHIC: European oil vs mining, monthly returns reut.rs/2jGqkBV
The last mining surge was in 2010 when big gains in metals
prices pushed investors towards mining stocks, while the shale
revolution in the United States took off, flooding oil and gas
markets and weakening the oil price.
Results from BP and Statoil on Tuesday showed the
risks to stock prices from disappointing results. Both companies
reported underwhelming earnings sending their shares down about
Goldman Sachs said in a note to clients that oil-related
shares were coming off their strongest 12-month performance
relative to the physical price of crude since at least
the 1980s, leaving limited room for further gains.
For miners, the fundamentals look more bullish as supply
starts to be constrained following cuts in exploration budgets
linked to the commodity price downturn of 2015.
"There have been dramatic changes to fundamentals. Supply
growth has basically stopped. Copper is the key," Chris
LaFemina, managing director at Jefferies, said of mining, adding
there was still plenty of scope for gains even after last year's
Basic materials stocks are easily the best
performing sector this year, up more than 6 percent. The broader
STOXX 600 is up 1 percent while oil and gas is
one of just three sub-sectors in the red.
At a mining conference in Cape Town, the first major
industry event of the year, insiders were more upbeat compared
with last year but mindful of risks given the sector's history
of boom and bust.
Tom Albanese, chief executive of diversified miner Vedanta
, said that while the mining sector had recovered prices
remained modest compared with where they were before the 2015
"I would not say these are peak prices. I see a progression
of supply-tightening events," Albanese said.