Why Now is a Good Time to Buy Diamonds

Anglo American is positioned well to benefit from as rising household incomes across China bolster demand for automobiles and jewellery, sending up gold, platinum and diamond prices

Morningstar Equity Analysts 15 January, 2016 | 10:56AM
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As China rebalances away from infrastructure and construction-led growth, long-lagging Anglo American (AAL) will find itself better positioned than most diversified peers. The company has greater exposure to consumption-oriented commodities like platinum and diamonds at about 40% of revenue, which should enjoy better demand growth than investment-oriented commodities like iron ore and copper that prospered most in the past decade.

Persistent problems have weighed on profits in recent years, threaten to limit the upside

Anglo's huge platinum business should benefit as rising household incomes bolster Chinese demand for automobiles and jewellery, categories that collectively account for 84% of platinum and palladium use in China. However, persistent problems related to labour, geology, and electricity in South Africa, which have weighed on profits in recent years, threaten to limit the upside.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anglo American PLC2,757.00 GBX-0.20Rating

About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.