Commodity Supply Crunch to Boost Already Booming Chinese Stocks
(Bloomberg) -- Chinese material stocks are soaring as commodity prices boom, and expectations for supply shortages signal shares may have room to rally even more.
Raw material stocks have led gains in both Shanghai and Hong Kong over the past month as robust demand pushes base metals to coal to fresh peaks. Among the top 10 performing stocks on the CSI 300 Index, seven are commodity producers, including a 72% surge for Huaneng Power International Inc. and Aluminum Corp. of China Ltd.’s 67% climb. Material stocks are also the best performers on the Hang Seng Composite Index.
A broad rally in commodities is gathering pace as a global recovery from the pandemic boosts demand just as Beijing’s crackdown on energy-intensive industries, including steel and aluminum, restrict supply. In energy markets, China’s heightened safety measures have suppressed coal output, propelling prices to a record and causing power shortages.
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“The rally in cyclical stocks may continue throughout the year as commodity prices keep rallying beyond expectations,” said Fan Jituo, strategist with Cinda Securities Co. “Supply gaps could hardly be filled in a short term. All these are yet to be priced in.”
The surge in materials, as well as soaring shipping and power costs, also highlights the difficulty China faces in reining in factory-gate inflation that jumped to a 13-year high in August. The country this week said it had tapped its state oil reserves, and has sold a raft of metals from stockpiles, though with limited success in curbing the price rally.
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