Our Trading Operations Manager, Roberto Russo, discusses the speculations surrounding China's zero covid policy and the effect on the market.
Recent Chinese protests have sparked speculation that the nation may be considering abandoning its strict "zero covid policy." Given that China has been unable to exit Covid properly since 2021, it appears that protestors are calling for a change in strategy.
Specific areas of the market have capitalised on this speculation, driving share prices sharply higher and restoring confidence in a number of commodities, particularly those that China buys in large quantities.
The price of iron ore has since risen as a result of this news; from a low of $80 per tonne, the DCE Iron Ore futures (China Futures) have risen back above $100. If this run continues with rising volumes, the $110 mark will act as the next point of resistance, making it an important area to watch.
In saying this, large caps including FMG & CIA have recently experienced significant gains, increasing 30%, while mid-cap companies like GRR are beginning to gain momentum following a recent severe downturn.
These significant gains in such a short amount of time demonstrate the strength of what may occur if China does eventually declare that it is disregarding its policy on zero Covid. This could push stocks like FMG, CIA, and GRR back to their highs before the downturn started, which still have a long way to rise during these volatile markets.
Oil is another crucial commodity to pay attention to. China's top import is crude oil, which has a significant impact on the price of the commodity as it locks down or opens. Whilst ASX-listed companies have been somewhat resistant to the volatile nature of oil futures, they sure like to run when times are good. However, the keynote here is the M&A activity which is about to heat up.
WGO currently has two contenders fighting over its assets, Gina Rinehart & Beach Energy, and potentially its now largest shareholder Strike Energy. While prices are declining and reserves on the large end of town dwindle, the fight over these assets demonstrates the relatively low valuation these smaller companies place on their exploration and potential project upside. This could mark the beginning of the current Oil & Gas M&A thematic.
Read the Conversation:
Roberto Russo:
“Recent Chinese protests have sparked speculation that the nation may be considering abandoning a strict zero Covid policy. Given that China has been unable to exit Covid properly since 2021, it appears that protestors are calling for a change in strategy. This directly affects the price of two commodities, that being iron ore and oil.
The price of iron ore has since risen as a result of the rumor that China may reopen. From a low of $80 per ton, the DCE iron ore futures have risen back above a hundred dollars. In saying this, large caps, including FMG and CIA, have recently experienced significant gains, increasing 30% while mid-cap companies like GRR are beginning to gain momentum following a recent severe downturn.
Oil is another crucial commodity to pay attention to. China's top import is crude oil, which has a significant impact on the price of the commodity as it locks down or reopens. WGO currently has two contenders fighting over its assets, Gina Rinehart and Beach Energy, and potentially its now largest shareholder Strike Energy could block any potential transaction. China's policy is increasing volatility in these two commodities and is expected to continue whilst the world awaits more factual news. To learn more about the commodities or stocks mentioned, click the link in the description.”
Where to from here?
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