The BHP Group Ltd (ASX: BHP) share price has drifted lower over the last few months, trading at $43.88 at the time of writing. But a fund manager has suggested the ASX mining share could rise as high as $100 in the future. Let's have a look at what might cause such a monumental increase.
The fund manager who's made the call is Tribeca Investment Partners' Ben Cleary, according to reporting in the Australian Financial Review.
Cleary has suggested it's a great time to invest in ASX mining shares despite pessimistic sentiment.
Why be bullish on miners?
The fund manager suggested there are supply constraints with a number of commodities after a "decade of underinvestment in new projects, while demand is continuing to build amid the transition to a decarbonised world".
Cleary points out that ASX mining shares are achieving good profits, enabling them to pay good dividends and fund share buybacks.
Despite the sound operating conditions, the fund manager thinks valuations in the resources sector have dropped because of the fears of a potential global recession, which might hurt demand for raw materials.
Why could this be good news for the BHP share price? The AFR reported Cleary thinks the market prices an event "long before it takes place", so he believes the market will soon be looking beyond the current economic uncertainty.
BHP share price to hit $100?
As we can see on the chart above, BHP shares are sitting at around $44, so the share price would need to more than double to hit $100 a share. But Cleary thinks the BHP share price can rise to $100 over the longer term in the current commodity cycle. He commented in the AFR:
Resources stocks are trading cheap, particularly against the broader market and there's all these categories of potential catalysts like M&A that could spark a rally.
We just think it's a great time to be adding exposure to the sector, and we have been, despite the uncertain environment we're in. I think people will look back and think they should've been topping up their exposure to resources stocks during the last couple of months.
BHP has a diversified resource base across iron ore, copper, nickel, and coal. China is a major buyer of iron ore, so what happens with the Asian superpower could be essential to the future success of the BHP share price. So what does the fund manager think about the outlook for the country?
Clearly noted that there has been some "underwhelming" economic data from China but he suggests its economy is strengthening. Cleary has visited the country three times so far this year. He points to a number of positives including rising property prices in most cities. As well, sales volumes are almost back to pre-COVID levels and home builders are also reportedly issuing bonds to foreign investors again, according to Cleary.
The fund manager said:
Activity in China is as strong as I've ever seen it – there's no doubt domestic travel is as strong as it's even been in the last 20 years, and commuting numbers are as strong as we've seen.
He thinks that strong credit growth will continue in China, which is good news for the manufacturing sector and subsequently iron ore. His bullish call on the BHP share price is a "proxy" for how bullish he is for the resources sector.
