Bank of America: Middle East tensions may boost gold, aluminum prices, giving CHINAHONGQIAO (01378) a "buy" rating with a target price of 48 Hong Kong dollars.

Bank of America Securities recently released a research report, reaffirming its positive view on gold against the backdrop of heightened geopolitical tensions in the Middle East. They believe that gold can serve as a safe-haven asset and hedge against inflation during periods of geopolitical uncertainty. The bank also pointed out that if tensions in the Middle East escalate, aluminum supply may further tighten, leading to higher aluminum prices. They gave CHINAHONGQIAO a "buy" rating with a target price of HK$48 and also gave "buy" ratings to ZIJIN GOLD INTL (02259), Zijin Mining Group (02899), Aluminum Corporation Of China (02600), and others. Hedging demand and inflation hedging will benefit gold Bank of America pointed out that since the abrupt escalation of tensions in the Middle East over the weekend, major oil and gas companies and traders have partially suspended transportation through the Strait of Hormuz. Despite the still very unstable situation and uncertainty about whether the Strait of Hormuz will be further affected, the bank reiterated its positive view on gold, as gold has always played a role as a safe-haven asset and hedge against inflation during periods of geopolitical uncertainty. Bank of America raised its forecast for gold prices last week. They acknowledged the increased uncertainty due to potential changes in the leadership of the Federal Reserve but believe that gold still has a path to reach $6000/oz, thanks to expectations of a weaker US dollar, geopolitical uncertainty, continued investment demand, and central bank gold purchases. The bank expects gold prices to be $4900-5000/oz in 2026-2027. Bank of America initiated coverage of ZIJIN GOLD INTL for the first time, calling it a top pick and giving it a "buy" rating with a target price of HK$280, citing the company's estimated production growth of 29%/18% in 2026/2027, robust cost controls (mid-single digit percentage in 2024-25, compared to 10-20% for peers), and a strong track record in mergers and acquisitions. They also gave Zijin Mining Group a "buy" rating with a target price of HK$56, as over 50% of its profits come from the gold sector and its valuation is not high; and gave "buy" ratings to Shandong Gold Mining (01787) and ZHAOJIN MINING (01818) with target prices of HK$52 and HK$44 respectively. If tensions escalate, aluminum supply may further tighten Bank of America pointed out that the Middle East is a major supplier of primary aluminum outside of China. They further explained: 1) The Middle East has a production capacity of about 7 million tons/year of primary aluminum, accounting for 9% of global supply, with members of the Gulf Cooperation Council (UAE, Oman, Bahrain, Qatar, Kuwait, Saudi Arabia) producing about 6.4 million tons/year, and Iran about 660,000 tons/year. Due to damage to electricity infrastructure, Iran's production may be limited. 2) Gulf Cooperation Council members export about 70% of primary aluminum (420-440 million tons/year), with about 2 million tons exported to the US and Europe. If the Strait of Hormuz is blocked, aluminum ingot exports may be cut off. 3) The region's alumina production capacity is only about 5 million tons/year and relies heavily on imports. In 2024, the Gulf Cooperation Council imported about 4.5-5 million tons of alumina, which may also be disrupted. 4) Conflict provides cost support from the perspective of electricity and freight. Middle Eastern smelters rely on cheap local natural gas and oil. War-induced energy price spikes will directly increase the marginal cost of global aluminum production. In contrast, China relies more on coal-fired power generation, giving it a relatively higher cost advantage in electricity. Bank of America predicts that the price of aluminum in China will be RMB 23,000/ton in 2026, with a profit margin reaching historical highs of RMB 6,000-7,000/ton, due to: 1) China's aluminum capacity approaching the upper limit of 45 million tons; 2) slow expansion of capacity in Indonesia under electricity constraints; 3) 3% growth in demand from the grid, energy storage systems (ESS) and electric vehicles (EV); 4) a copper-aluminum price ratio of over 4 times; 5) favorable demand for AI electricity. Bank of America gave Aluminum Corporation Of China a "buy" rating with a target price of HK$17. They also gave CHINAHONGQIAO a "buy" rating with a target price of HK$48, pointing out the upside points faced by the stock, including: 1) aluminum and alumina prices performing better than expected, 2) stronger demand in the construction, power, and transportation sectors, 3) China's aluminum capacity reaching its limit, 4) more overseas capacity shutting down due to high costs, 5) declining costs of coal and electricity.