Chinese manufacturing grew at its fastest pace in 18 months in July and this supportive macro backdrop should support mining stocks, our preferred stock being BHP Billiton (BLT). News on further asset sales and a possible demerger of non-core operations when the company reports its full-year results on 19 August could offer a further near-term catalyst for the stock at £20.89.

The initial HSBC purchasing managers' index, a key gauge of the sector's health, hit a reading of 52 (24 Jul) from 50.7 in June (anything above 50 signals expansion). The fortunes of China are closely tied to those of resources companies because the world's second largest economy is the top global consumer of many major commodities.

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Chart of the week

There is increasing speculation BHP may spin-off unwanted assets into a separate entity as stockbroker Charles Stanley comments: ‘All the indications are that chief executive officer Andrew Mackenzie is impatient to slim down BHP to its core assets of petroleum, iron ore, copper and coal, with potash as an optional fifth, and to run that separately as soon as possible.’

Issue Date: 31 Jul 2014