China's Non-Ferrous Metals Stocks Face Limited Gains, UBS Says

BEIJING, Apr. 7 - China's non-ferrous metals producers have limited room for further share-price gains as they are trading close to their historical peak compared with the market and metals prices are forecast to decline, according to UBS AG.

Producers of non-ferrous metals, or those without iron, surged 84 percent from Jan. 5 to April 3 in Shanghai and Shenzhen trading, more than double the 29 percent advance by the Shanghai Composite Index, according to UBS. The London Metal Exchange Index of six metals, including copper, zinc and aluminum, climbed 13 percent in the same period.

The share-price gains have brought the relative valuations of the metals producers to 2.3 times the overall market, close to the historical peak of 2.49, the report said.

"The non-ferrous metals sector has become quite expensive compared to the market average, in the absence of commodity price support," Chen Li, Shanghai-based strategist at UBS, wrote in a note dated yesterday.

UBS has a "sell" recommendation on Aluminum Corp. of China Ltd., the nation's biggest producer of the metal.

"Non-ferrous metals' prices in the next few months will decline from the current level," indicating that the rally in the industry has "little support from fundamentals," the report said.

Investors should favor large Chinese lenders, such as Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., as their share prices reflect expectations for a narrowing of net interest margins and an increase in bad loans, the report said.

The brokerage has "buy" ratings on both ICBC and China Construction Bank, the nation's two largest banks.