Jefferies names BHP and Rio Tinto as top mining picks amid China fears

12th Mar 2014 10:08

Jefferies has labelled BHP Billiton and Rio Tinto as 'points of entry' to the high-risk mining sector on the back of re-emerging concerns surrounding the Chinese economy.Fears of a "significant slowdown" in Chinese growth have been reignited in the past two weeks amid tightening credit conditions and falling commodity prices, Jefferies said."Mining equities have slumped in light of these fears. Is this a good buying opportunity or time to head for the hills? Our analysis indicates that a buying opportunity is emerging, but near-term risks are clearly elevated," the broker said.On a positive note, Jefferies added that some of the recent weakness in commodity markets is likely "transitory" given that underlying demand in China is probably "not as catastrophic as some may believe"."China is risky, which is one reason why mining equities trade at discount valuations relative to the broader equity markets," the broker explained."There is risk that near-term conditions in China could worsen, but we would consider building long-term positions in shares of high quality miners such as BHP Billiton and Rio Tinto after the recent weakness. Avoid the highly leveraged, high risk miners for now."Jefferies has set a 1,812p target price for BHP Billiton and a 3,155p target for Rio Tinto. Both stocks are rated 'buy'.BC