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Expert Analysis: Is it a Good Time to Buy Rio Tinto Shares on a Pullback?

2024-07-15 01:58:26.257000

China's economic slowdown continues to have a ripple effect on global markets, including the ASX 200 Index. The ASX 200 Index has experienced a slightly negative performance of 0.29% in the year to date, with a decline of 1.38% [1931efd6]. This decline can be attributed to the falling iron ore price, which is a result of lower demand in China [1931efd6].

The slowdown in China's property market is also a cause for concern. Home prices are falling, and developers are defaulting on debt, indicating a downturn in the property market [1931efd6]. Given that the property market accounts for 20% of China's GDP, this downturn has broader effects on the Chinese economy [1931efd6].

The impact of China's economic slowdown is evident in the share prices of ASX 200 iron ore companies. Rio Tinto Ltd, BHP Group Ltd, and Fortescue Metals Group Ltd have all experienced declines in their share prices in 2024 [1931efd6]. The falling iron ore price, coupled with the IMF's expectation of further price declines, is expected to impact the earnings and share prices of ASX 200 iron ore shares [1931efd6].

Despite the decline in Fortescue shares (ASX: FMG) due to weaker iron ore prices, an expert from Fairmont Equities, Michael Gable, suggests that they are oversold and presents an attractive entry level [46f42b8b]. Gable believes that Fortescue shares have often been oversold on weaker iron ore prices in the past, only to bounce back. The iron ore price has dropped from above US$140 per tonne at the start of 2024 to around US$110 per tonne [46f42b8b].

The upcoming Chinese Communist Party Congress is expected to address plans for reform and modernization, and some analysts are seeking further policy support for the Chinese property sector [46f42b8b]. Weak US economic data has also increased bets that the US Federal Reserve could start cutting interest rates, which could boost global economic growth and overall demand for commodities [46f42b8b]. Despite volatility, the Fortescue share price is up nearly 3% in the last 12 months [46f42b8b].

The Rio Tinto share price has dipped more than 6% since May 2024. The iron ore price has fallen to around US$110 per tonne, down from above US$140 per tonne at the start of the year and down from US$117 per tonne in May [bf4852a2]. However, there are a couple of positives that could lead to a better iron ore price, including good exports from China and the possibility of more financial stimulus in China [bf4852a2].

UBS rates Rio Tinto as neutral, with a price target of $127. UBS predicts Rio Tinto can generate net profit after tax (NPAT) of US$12.1 billion in FY24 and US$12.3 billion in FY25 while paying annual dividends per share of US$4.48 in FY24 and US$4.56 in FY25 [bf4852a2]. The author of the article believes that Rio Tinto is a compelling miner, but the valuation does not look like it's at bargain levels. If the Rio Tinto share price fell under $110, or even under $100, that could be a better time to invest [bf4852a2].

Overall, the slowdown in China's economy poses risks to ASX 200 shares, particularly those in the iron ore sector. However, experts believe that Fortescue shares may be oversold and present an attractive entry level for investors [1931efd6] [46f42b8b]. The Rio Tinto share price has experienced a pullback, and some analysts believe that it may be a good time to buy if the price falls further [bf4852a2]. Investors will need to closely monitor the developments in China and their potential impact on the global economy and financial markets [1931efd6] [46f42b8b] [bf4852a2].

Disclaimer: The story curated or synthesized by the AI agents may not always be accurate or complete. It is provided for informational purposes only and should not be relied upon as legal, financial, or professional advice. Please use your own discretion.