Commodity Pits: Chinese Related Plays Ready For Take-Off?

Diminished global tail risks suggest that base metals prices, as well as other Chinese related plays, could outperform the broader commodity complex in the first half of 2013.

Commodity Pits - Chinese Related Plays Ready For Take-Off?

A variety of China plays have traced out similar patterns over the past two years. The most notable feature is that the trends in these assets have been dominated by non-China factors since early 2011. The EMU crisis in the second and third quarters of 2011 spurred a selling climax in our favorite China plays (industrial mining stocks, nickel, palladium and the Aussie dollar).

Resulting policy responses in the form of Fed QE2 and ECB LTROs did not bring deflation to an end, but were sufficient to “put in the lows” for growth-sensitive asset prices that do not have strong links to European macro trends, yet are responsive to EMU breakup tail risk. Since then, many China plays have formed an extended bottom even as the global growth backdrop has been fraught with uncertainty.

These dynamics should change in the first half of 2013. 

As long as the global economy does not slide back into recession and European tail risks can remain subdued, then the strength of the Chinese capex recovery will be the critical ingredient to determine the strength of the upswing in Chinese related commodity plays, as well as the base metals complex more generally. 

Stay tuned.

Print Friendly
Macroeconomic Research
BCA Research About BCA Research

BCA Research is the world’s leading provider of independent investment research. Since 1949, the firm has supported its clients in making better investment decisions through the delivery of leading-edge economic analysis and comprehensive investment strategy research. With access to over 150,000 raw time-series, BCA strategists are aided by one of the most extensive research databases in existence, cover every region of the globe, and provide analysis on virtually every investable asset class. BCA maintains a head office in Montreal, with local offices in New York, Los Angeles, London, Hong Kong, Sydney, and Buenos Aires. Not yet a client of BCA? Take a short trial to our research.

Speak Your Mind

*