China-linked resources sell-off sinks FTSE, BHP lining up an oil and gas exit

“It’s a downbeat start to trading on Monday with the FTSE 100 giving up some of last week’s gains. The oil and mining sectors helped drag down the index as BHP confirmed it was in talks over an exit from its petroleum division,” says AJ Bell Investment Director Russ Mould.

“The commodities-related sell-off also followed weak data from China where retail sales slumped – raising questions over demand from the resources-hungry nation.

“The aerospace and defence sector was in focus thanks to the latest M&A news as Meggitt sanctioned a takeover deal from Parker Hannifin while Cobham and Ultra Electronics agreed terms on a merger.

“The downside for UK investors is yet another part of the market is being hollowed out, reducing the breadth and diversity on offer from London-listed shares.”

BHP

“Is the oil and gas industry becoming toxic? News that resources firm BHP is closer to an exit from oil to focus purely on its mining operations is the latest sign of investment moving away from crude.

“There is a party potentially willing to take on the assets in Woodside Petroleum – so oil and gas can’t be entirely written off yet.

“However, it’s starting to feel like the direction of travel is clear as the impact of man-made emissions becomes more tangible.

“If BHP can make this deal happen it would help realise significant value in the business and put a big tick in the ESG box.

“While it is one of several options being looked into at BHP it looks like the writing is in the stars for its petroleum arm, with the business also scurrying away from its coal holdings.

“Rather than being victims of the transition away from fossil fuels, the miners can expect to play a pretty full part given the metals they dig out of the ground will be crucial to building the infrastructure and kit for large-scale renewables projects and electric vehicles.

“By exiting the oil business BHP could free up funds to increase its exposure in areas like battery metals and copper where demand from the ‘green’ economy is likely to be particularly robust.”

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