Industrial metals get a policy boost from China
Published 30 September 2024
Key Takeaways
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The People’s Bank of China (PBOC) has announced a broad policy package to inject growth into the Chinese economy, with additional fiscal support pledged by the country’s leadership. The immediate market reaction has been positive. We believe industrial metals, a sector closely tied to China’s economic health, stands to benefit from any impact the stimulus measures may have.
China’s policy announcements and why they matter
Beijing recently held a surprise Politburo meeting in September1, underscoring the urgency of addressing the country's economic situation. China’s leaders have committed to intensifying fiscal support for the world’s second-largest economy2. This announcement follows a series of measures from the central bank and financial regulators aimed at bolstering economic growth3.
The PBOC’s policy package is one of the most comprehensive in recent times, spanning interest rate cuts, property sector support, and stock market stabilisation efforts. Key components include:
Countercyclical measures | Property support measures | Stock stabilisation fund |
|---|---|---|
The seven-day reverse repo rate was cut by 20 basis points (Bps) to 1.5%, leading to a 30Bps cut in the medium-term lending facility (MLF) rate to 2%. This will lower banks’ loan prime rates (LPRs) and deposit rates by 20-25Bps. | Interest rates on outstanding mortgage loans will drop by an average of around 50Bps, and the minimum mortgage downpayment ratio on second homes will be lowered from 25% to 15%, matching first-home ratios. | A CNY500bn swap facility will allow securities firms, funds, and insurance companies to access liquidity to purchase equities. |
Reserve requirement ratios (RRR) for large and medium-sized banks were cut by 50Bps, releasing CNY1 trillion in liquidity. | The PBOC will enhance the CNY300bn re-lending program for state-owned enterprises (SOEs) to acquire unsold property inventories. The program now covers 100% of bank loan principals, up from 60% in May. | A specialised re-lending facility of CNY300bn will support listed companies and major shareholders in buybacks and increasing holdings, with a re-lending rate of 1.75%. |
Source: South China Morning Post, WisdomTree, as of 24 September 2024
Industrial Metals and the Chinese Economy
China’s announcements as the world’s second-largest economy and top consumer of commodities have spurred a sharp rise in industrial metals. While the measures alone are unlikely to resolve the housing crisis, they could stimulate infrastructure investment, benefiting the metals market. Base metals are likely to receive firm support in the short term. If the Politburo’s announcements are accompanied by fiscal stimulus, such as the Ministry of Finance's planned issuance of 2 trillion yuan ($284.43 billion) in special sovereign bonds, the recovery in industrial metals could gain even more momentum.
Our latest Commodity Monthly Monitor noted that investor sentiment toward industrial metals has been cautious, as evidenced by weak speculative positioning in futures markets, driven by concerns over short-term oversupply. For months, we argued that rate cuts from the Federal Reserve and improved sentiment towards China were key to lifting the sector. Both catalysts have now emerged, providing the potential for a sector-wide boost from what we view as undervalued price levels. Early signs indicate that the sector is beginning to respond positively to China’s policy support.
1 Financial Times, 26th September 2024
2 Xinhua 26th September 2024
3 Reuters as of 24th September 2024
About the contributors
Aneeka Gupta
Director, Macroeconomic Research, WisdomTree Europe
@AneekaGuptaWTAneeka Gupta is Director of Research at WisdomTree. Prior to the acquisition of ETF Securities in April 2018, Aneeka worked as an Equity & Commodities Strategist at the company. Aneeka has 17 years of experience working as a Research Analyst across a wide range of asset classes. In her current role she is responsible for conducting analysis for all in-house equity, commodity and macro publications and assisting the sales team with client queries around products and markets. Prior to WisdomTree, Aneeka began her career as an equity analyst at Bear Stearns International Ltd in London. She also worked as an Equity Sales Trader at Sunrise Brokers across US and Pan European Exchanges. Before that she worked as an Equity Derivatives Sales Manager at Mashreq Bank in Dubai. Aneeka holds a Masters in Mathematics from Oxford University and a BSc in Mathematics from the University of Delhi, India. She is also a CFA Charterholder.
Mobeen Tahir
Director, Research
@MobeenTahirWTMobeen is a member of WisdomTree’s research team where he focuses on a wide range of asset classes to offer strategic and tactical insights to our clients on global markets and investment products. Before joining WisdomTree in December 2018, Mobeen worked at Willis Towers Watson as an investment consultant advising institutional clients as well as their in-house fund business on asset allocation and portfolio construction with his research focus being equity and multi-asset smart beta. Mobeen has a BSc (Hons) in Accounting and Financial Management from Loughborough University and an MSc in Accounting and Finance from the London School of Economics and Political Science. He is also a CFA Charterholder.