BHP Shares Remain Top Mining Pick Despite China Growth Downgrade

BHP shares (ASX:BHP) head into Tuesday’s open at A$60.72, as Morgan Stanley reaffirmed the stock as its preferred diversified mining pick. The move comes even as the investment bank trimmed its China full-year GDP forecast by 20 basis points to 4.6%, citing a weaker-than-expected second quarter and ongoing property sector headwinds.

The endorsement comes amid mounting evidence of broad-based weakness in the world’s second-largest economy, where manufacturing activity contracted in July for the first time since February and property starts plunged 26% year-on-year. Despite this, the bank’s analysts see a firmer second half ahead, underpinned by faster deployment of roughly 2 trillion yuan in unused fiscal firepower.

Recent China Data A Commodity Drag

China’s second-quarter GDP growth of 4.3% undershot expectations, dragged down by slower infrastructure spending, oil-related refining weakness and softer consumption. The miss prompted Morgan Stanley to revise down its full-year outlook, though the bank emphasises that substantial in-budget fiscal stimulus remains available to stabilise activity in coming months.

The property downturn, which has extended into the third quarter, represents a structural headwind for steel demand and by extension iron ore consumption. New housing starts fell 26% year-on-year, with analysts expecting home price declines to accelerate through the remainder of 2025. Construction activity, as measured by the official PMI, slumped to a record low of 47.0 in July, underscoring the depth of the sector’s malaise.

Despite the grim macro backdrop, recent industrial data paint a more nuanced picture. June steel exports rose 7% year-on-year to 10.3 million tonnes, while crude steel output edged up 0.4% and iron ore imports climbed 6% to 113 million tonnes. Aluminium production increased 4.7% year-on-year to 4.0 million tonnes, suggesting infrastructure and export-oriented manufacturing continue to support demand for raw materials even as domestic property languishes.

Morgan Stanley’s preference for BHP rests on three pillars: strategic copper demand tied to electrification and grid investment, the company’s low-cost Western Australia Iron Ore operations, and expansion optionality across copper, potash and other growth projects. The bank views BHP’s pivot toward copper as crucial, positioning the miner to benefit from structural demand growth in energy transition metals while its high-margin iron ore business continues to generate cash flow.

The manufacturing PMI data released last week reinforced concerns about demand weakness, with the headline index falling to 49.2 in July from 50.3 in June, below the 50 threshold that separates expansion from contraction and the weakest reading since February. The new orders sub-index dropped to 48.5, the lowest level in 38 months, with domestic weakness largely to blame while export orders softened only slightly.

Non-manufacturing activity also contracted, with the composite PMI sliding to 49.3, the lowest since China ended its zero-COVID policies in late 2022. Services activity weakened to levels last seen during the initial pandemic lockdowns, while the construction gauge hit an all-time low. The breadth of the slowdown has intensified pressure on Beijing to roll out additional stimulus measures.

Adding to concerns, US-bound shipments from China fell for the first time in several months, a sharp reversal from June’s 14% surge that had helped overall exports jump 27%. The softening of the export engine, which has been a rare bright spot for Chinese manufacturers, raises questions about whether external demand can continue to offset domestic weakness.

Why BHP Shares Hold Top Rating

Morgan Stanley’s call on BHP ultimately reflects a view that quality and diversification matter in an uncertain macro environment. While near-term headwinds from China’s property slump and weak PMI readings pose risks to iron ore and metallurgical coal, the bank appears willing to look through cyclical volatility toward BHP’s structural exposure to copper and its proven ability to generate cash flow across commodity cycles.

BHP’s cost advantage in iron ore remains a key differentiator, whilst the copper thesis underpinning Morgan Stanley’s call centres on multi-decade demand drivers including grid modernisation, electric vehicle adoption, renewable energy infrastructure and data centre expansion.

Looking ahead, markets will be watching for concrete signs that Beijing is accelerating fiscal spending and whether such measures translate into sustained demand for industrial commodities. Key data points include monthly steel production figures, property sales and starts, infrastructure investment growth, and commodity import volumes.

Any indication that the second-half pickup is materialising would support the bull case for BHP shares and other China-exposed miners.