Chinese market participants are increasingly investing in stocks related to precious and industrial metals such as copper and gold, contributing to the support of the domestic market which is striving to sustain a recent recovery.
Over the last month, a specific index monitoring resource companies listed in Shanghai and Shenzhen has seen a 10% increase, outperforming other sectors within the CSI 300 benchmark. Notably, Zijin Mining Group Co. (601899, Financial) and Shandong Gold Mining Co. (600547, Financial), both significant players in the gold and copper industries, have experienced over 20% growth during this timeframe.
The surge in interest towards base metal producers, including copper, is attributed to the revival of China’s industrial sector, a constrained domestic supply, and the anticipation of declining global interest rates. Additionally, the increased demand for gold is driven by Chinese investors seeking higher yields amidst the country’s real estate challenges and the diminishing returns on bank deposits.
Analysts from Morgan Stanley, including Rachel Zhang, have expressed optimistic perspectives on the copper market and related stocks such as Zijin Mining and CMOC Group Ltd. (603993, Financial), citing similar positive sentiments towards aluminum producers like Aluminum Corp. of China Ltd. (601600, Financial) and China Hongqiao Group Ltd. (1378, Financial), which are expected to maintain profitable margins due to ongoing supply limitations.
This rally in the stocks of the sector coincides with a commodities market upswing, pushing gold to record highs and copper prices near a 15-month peak. This trend represents one of the few positive drivers for China’s local equity market, which has recently begun to falter after two months of gains.
Despite a modest 2.2% increase this year, the CSI 300 index, predominantly comprised of state-owned enterprises in traditional sectors, remains among the least performing major indexes globally. Conversely, an index of Chinese companies listed in Hong Kong, showcasing some of the country’s leading technology firms, has risen by 4.3%.
However, some market observers caution that the recent sharp increases in metal stock prices may not be sustainable, questioning the solidity of China’s economic recovery. According to Shen Meng, a director at Chanson & Co. in Beijing, the rapid gains are partly fueled by speculative investments aimed at quick profits.
