Rio Tinto’s problems over-exaggerated, experts say

Experts have shrugged off the losses announced today by Rio Tinto, saying the resulting slump in its valuation is likely to be short-lived.

This morning the mining giant reported a 59 per cent drop in profits, driving its share price down by 2 per cent.

Rio Tinto is a staple stock for many funds, with more than 250 in the IMA unit trust and OEIC universe holding it in their top-10, while more than 20 have at least 5 per cent invested in it, according to FE Analytics.

L&G UK Growth and JPM Natural Resources are two such funds. The former holds 6.57 per cent of its £463m assets under management in Rio Tinto, while 3.5 per cent of the JPM fund's £2.3bn AUM is similarly invested.

Even with today’s poor results, Keith Bowman, equity analyst at Hargreaves Lansdown, remains optimistic for the company. He says its drop in profits is merely part of the cyclical nature of energy equities.

"We believe Rio Tinto tends to act as a global economic barometer. We still see continued growth in China along with the company’s projects in Australia as encouraging," he said.

Darius McDermott, managing director at Chelsea Financial Services, believes Rio Tinto’s stature among fund managers will not change in light of the results.

"Rio Tinto has been a particularly popular stock because of the China growth story. Managers recognise this Chinese element as well as the continuing worldwide demand for metals," he explained.

"Rio Tinto’s major concern will be if there is a large China slowdown."