MINING groups have spared the blushes of private and professional investors over the past year. As financial services, housebuilding and media stocks have crumbled, the commodities boom has made groups such as BHP Billiton, Anglo American and Rio Tinto look star performers. Without the backstop provided by miners and oil and gas groups, the FTSE 100 would already be well south of 5,000.

Even the miners, however, have suffered in the recent sell-off. Rio Tinto, which closed last week at £50.70, is down 17.2% over the last three months. BHP Billiton (which is trying to buy Rio) finished at £16, down 16.7% over the same period. Anglo American (£27.99) is down 17%.

The situation is the same if you take a broader measure of the mining groups listed in London. The FTSE All-Share Mining index is down 14.6% over three months, and, at 22,249, closed on Friday just 7.9% above where it was 12 months ago. This recent slide has prompted some nervous investors to start talking about the commodities bubble having “cracked” and to forecast a big fall for the miners.

That is overly pessimistic. Sector analysts and executives are nonplussed about the drop, pointing out that the prices of the underlying commodities have not seen similar falls - in fact quite the reverse, with Rio Tinto and BHP, for example, recently agreeing an 80% increase in the price of iron ore with Chinese steelmakers.

One explanation is that many funds, having already made hasty exits from sectors that have fared worse, are able to take decent profits by selling out of mining stocks, particularly if they bought them a year or more ago.

Rio Tinto’s shares, for example, are still 36% above where they were this time last year. If a fund faces the added imperative of a cash call, there may be little else in its portfolio that it makes sense to sell.

The question now is whether the sector’s retreat represents a buying opportunity. The answer lies in Beijing. If China and the other emerging economies continue their headlong growth rush, the miners will be fine. If the western downturn spreads east, they won’t.

The good news is that China doesn’t show any sign of slowing down. Its economy is expected to grow by some 9% this year and its appetite for iron ore and other raw materials is undiminished.

Fabio Barbosa, finance director at Vale, the Brazilian miner, made a compelling point in a recent interview with The Sunday Times. Unlike previous emerging-economy booms, the finances of the resource-hungry countries are impeccable.

China, for example, has built up enormous surpluses, all of which should sustain demand for commodities. Mining stocks are unlikely to show again the spectacular growth of recent years, but for the moment at least they are safer than houses. Mears

Mears

SUPPORT services is another defensive sector. The argument in its favour is simple - public-sector spending is less affected in a downturn than the private sector. Capita, Serco and Mitie, businesses that have grown quickly as councils and government departments have farmed out work, have all outperformed the market in the past year.

A relative newcomer is Mears Group, which specialises in social-housing maintenance and in-home care. It has been an AIM stalwart, stepping up to the main market in June. It closed last week at 258½p, valuing it at £190m.

The management wants to turn it into the next Capita, which has a stock-market value of £4 billion and an upbeat set of results expected on Thursday. It’s an ambitious target, but it might take a step in the right direction this week when news is due on a large contract to maintain 13,000 homes for the Metropolitan Housing Association.

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