Not all commodities are equal. Some will bounce off and others will take a beating from China’s shift to consumption.
JOHANNESBURG – Fears of a significant slowdown in China’s economy, the second largest in the world, have whipped markets into a frenzy this year. As global equity markets opened on August 23, one by one and region by region, key indices flashed red.
This, as the after-effects of China’s Black Monday – in which the country’s benchmark Shanghai Composite Index extended its losses to post its steepest one-day decline of 8.5% since the 2007 financial crisis – was ripping through world markets and prompting historic single-day sell-offs across the board.
Since then, continued volatility in Chinese markets, tempered somewhat by state intervention, which Goldman Sachs values at $236 billion over three months, has left investors across the globe uneasy.
Last year, the country’s economic growth slowed to 7.4%, its lowest level in more than 20 years. The extent to which the economy will slow this year remains a mystery – the People’s Bank of China expects the country’s economy to grow by 7%, the World Bank revised its annual growth forecast down to 6.9% from 7.1%, but the International Monetary Fund is sticking to its estimate of 6.8%. As is to be expected, some are less positive while others believe these fears are overdone.
“There is no doubt that growth will slow, but I don’t think there is a collapse in China coming,” said Liang Du, director and co-head of Asset Allocation at Prescient Investment Management, who is billed as the driving force behind the firm’s investments in China. He added that China’s stock market can withstand a long-term growth rate of 3%, a level which his firm would still consider attractive.
These fears have had a ripple effect on commodity markets, prompting widespread sell-offs in a number of precious and industrial metals as well as bulk commodities. Caroline Bain, senior commodities economist at Capital Economics, told Mineweb from London that the extent to which commodity markets are pricing in a collapse are also overdone, particularly as China’s commodity imports are “holding up”.
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