Are crashing ASX mining shares an opportunity or a disaster to run from?

Is the brutal sell-off in ASX mining shares the best buying opportunity of 2021 or a warning that investors should run for cover?

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Is the brutal sell-off in ASX mining shares the best buying opportunity of 2021 or warning that investors should run for cover?

The S&P/ASX 300 Metal & Mining (INDEXASX: XMM) index collapsed around 8% since hitting a record high last month.

Euphoria turned to gloom as the market fretted over concerns that commodity prices have past their peak. The bearish sentiment was even more pronounced after China said it will release a range of metals from its strategic reserves to curtain rising prices.

Why ASX mining shares are crashing

This triggered a big bout of profit taking on the likes of the IGO Ltd (ASX: IGO) share price, OZ Minerals Limited (ASX: OZL) share price and Alumina Limited (ASX: AWC) share price.

While iron ore isn’t on the list of commodities that China is selling, the Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG) share price have also been caught up in the sell-off.

Use crash as buying opportunity for ASX miners

However, a number of experts have commented that China can only have a short-term impact on commodity prices at best.

This is because, unlike the last commodity supercycle, demand for metals is coming from other major economies as well.

Further, ASX miners are starting to look cheap, according to the analysts at Morgan Stanley.

ASX mining shares looking cheap vs. other sectors

Using its proprietary bottom-up data, the broker found that ASX miners have traded around 6 times EV/EBITDA over the last decade.

With the underperformance of the sector, the S&P/ASX 200 Index (Index:^AXJO) excluding ASX banks and miners has risen to around 14 times.

“The mean ratio of mining EV/EBITDA vs this other group over the past decade is 0.55x,” said Morgan Stanley.

“Mining relative value now sits 2.2 standard deviations below mean, suggesting compelling value on this metric.”

ASX mining shares to buy today

ASX miners also look undervalued on a comparative EV/revenue and P/E basis to the ASX 200 ex banks and miners.

For this reason, the broker is urging investors to use the sell-off as a buying opportunity and to go overweight on the sector.

Some of its key ASX mining picks are the South32 Ltd (ASX: S32) share price, the Alumina share price and Newcrest Mining Ltd (ASX: NCM) share price.

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Brendon Lau owns shares of Fortescue Metals Group Limited, Newcrest Mining Limited, OZ Minerals Limited, Rio Tinto Limited, and South32 Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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