Remarkably, as the Shenzhen ChiNext Index, nicknamed China’s ChiNext Index, tumbled the most in 10 months on Monday, metals futures in China rallied. China’s onshore iron ore futures soared 7.2%, coking coal futures advanced 7.2%, and thermal coal futures rose 5.6% today.
According to Goldman Sachs, this metals bull market has room to run.
The main reason? The bank’s proprietary China Metals Credit Wave (MCW) tracker, which measures the amount of credit extended to the metal-intensive Old Economy, has jumped to reach its highest level on record in December, usually a good leading indicator of China’s future manufacturing PMI, its fixed asset investment levels, and metal prices.
Take a look at this chart. The latest December reading of Goldman’s Metals Credit Wave tracker is even stronger than a year ago, before the metals bull market started.
There is more credit extended to China’s Old Economy now than a year ago, a sign that metals bull market has more room to run.
Goldman Sachs
Old Economy plays are the popular play of the day now, which perhaps explains why the ChiNext Index has been slipping for 8 consecutive days. See also my last weekend’s column “China 2017: Infrastructure Pushes Tech Aside“.
Year-to-date, Fortescue Metals (FMG.Australia) already gained 7.6%, BHP Billiton (BHP) rose 6.8%, Rio Tinto (RIO) advanced 5.5%, Brazil’s Vale (VALE) was up 25.7%.
AHQ Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
