Natural resources pull ahead of banks in FTSE 100 index sector stakes

Natural resources edged ahead of banks in April in terms of its weighting in the FTSE 100 Index. Around 16% of the blue-chip benchmark is now invested in mining and basic resources companies, a whisker ahead of beleaguered banks.

Anyone who today invested £100 in a fund tracking the FTSE 100 would see £35 go into commodities through oil, gas or natural resources companies. By contrast, just £23 would be invested in the wider financial services sector, embracing banks, real estate and insurance.

Although the financial sector is often viewed as a bell-weather of the UK stock market, companies with commodities at their core are now arguably more representative of the health of London equities, says Tom Ewing, manager of the £676 million Fidelity UK Growth Fund.

The rising importance of natural resources and energy companies also marks a further weakening in the relationship between the London stock market and the UK domestic economy. On average, groups in these sectors say that they generate less than a third of their sales revenues in Europe, including the UK.

Internationalisation picks up pace with rise of miners

FTSE 100 companies now attribute only 36% of their sales revenues directly to the UK. While Europe and the US still account for a large portion of the revenues, the rest of the world - including emerging markets - generates, on average, 20% of the sales of British blue-chip companies.

This growing dependence on overseas revenues is particularly marked in the energy and natural resources sectors. Oil major BP attributes just 21% of sales to its home market. Vedanta, the mining group, books none of its sales as coming from the UK, Europe or North America, while copper producer Antofagasta says more than half of sales are from the rest of the world.

Unsurprisingly, many resources companies are also based or have important operations outside the UK. Mining group BHP Billiton's headquarters are in Melbourne, Australia. Antofagasta, Kazakhmys and Vedanta might have official HQs in London, but their main operations are in Chile, Kazakhstan and India respectively.

Mining - a big call for UK equity investors in 2008

With resources stocks now accounting for around 16% of the UK stock market, a call on mining shares could prove critical for investors this year. Tom Ewing says: "The FTSE 100 contains the four big global diversified miners - the kind of leadership we don't have in other industries - other than undercapitalised banks!

"Recent strong performance by the mining stocks has reversed a sustained period in the doldrums. Low metal prices in the 1980s and 1990s led to an under-investment in new supply. It is now likely to take a number of years for demand and supply to become balanced once again. High metal prices are very positive for mining stocks which trade on a price/earnings ratio below the market as a whole.

"In my view, the outlook for natural resources companies continues to be positive, thanks to demand for metals and other materials in Asia. China is in the midst of development phase that is extremely resource intensive - a phase of development that the UK went through decades, even a century ago. The fact is that supply cannot cope with such unexpected massive demand."