Beijing's pivot to economic stimulus bodes well for Australian miners.
After a strong start to the year, driven by the lifting of pandemic restrictions and the relaxation of some of the government’s more stringent policies, economic growth in China has recently faded as evidenced by economic data missing expectations.
China was striving for a consumption-led recovery, with the aim of consumption becoming a larger component of gross domestic product (GDP) over time.
However without confidence in the stability of the housing market, this recovery faltered. China is now addressing the problem at its core.
Beijing is lowering key interest rates to stimulate bank lending and is planning a round of stimulus aimed at the real estate sector, which makes up more than a quarter of the Chinese economy.
This sector has been suffering the aftereffects of a crackdown on developer debt.
Australia’s iron ore producers will be the biggest beneficiaries of a rebound in the Chinese property industry, namely BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals (ASX: FMG).
China takes about three quarters of the world’s seaborne iron ore and is the largest producer and consumer of steel, making it by far the most important player in the global market.
A return to growth in Chinese construction will also drive demand for metals such as copper and aluminium as well as ceramics, tiles, paint pigments and other building materials.
This is a turnaround that is catching many in the market by surprise. At WAM Leaders, we think China’s stimulus leaves it looking well positioned for growth just as the rest of the world heads into a slowdown under the increasing burden of rising interest rates.
About Matthew Haupt, Lead Portfolio Manager of WAM Leaders
Matthew has more than 20 years’ experience in the investment industry working as both a portfolio manager and analyst. Prior to joining Wilson Asset Management, Matthew gained extensive large-cap experience in his previous role within Australian Executor Trustees (now part of IOOF). Matthew is the Lead Portfolio Manager responsible for WAM Leaders.
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