Will things get better for BHP? Is there a future to look forward to healthy capital gains and dividends?
It's hard to think about things getting better with BHP without thinking about the Evergrande construction business, its debt and its probable impact on the building industry in China.
I think China has started to try and move away from a country where GDP growth was heavily supported by the construction industry and move towards a country with growth coming out of the service industry. This, as best I can understand it, has been a slow, steady work in progress for several years. The concern about the Evergrande debt issue will, I think, make them stop and think hard about how many companies (like Evergrande) are building on the back of sub par grade loans.
My guess is that they'll keep Evergrande afloat, albeit by getting all participants to take a small hit. The biggest issue will be a recognition that it's time to stop developing roads to nowhere and buildings up into the clouds, at least to the degree that they've been doing it until now.
I don't think this means that they'll stop building or stop importing iron ore from Australia but the next ten years aren't going to be like the last ten years.
Australia has a lot of commodities in the ground and the changing world will probably need them. It then gets down to how smart and flexible BHP is and how quickly they sniff the winds of change.
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