In Commodity News 28/06/2016
Brexit gives a further reason to buy Asian and emerging markets stocks, according to CLSA‘s chief equity strategist Christopher Wood. Wood raised emerging markets to Overweight this morning.
First, Brexit is good for commodities such as iron ore and steel, thereby boosting Asia’s material stocks. This is because a steal QE, in the form of a cheaper pound and euro that resulted from Britain leaving the European Union, provides an excuse for more monetary and fiscal easing. “Infrastructure stimulus in the G7 world should give some sort of bid to the commodity complex on a global basis,” wrote Wood.
Indeed, commodity traders in China agree. Iron ore futures jumped 5.2% this morning, hard-rolled coil (steel) soared 4.5%. The Shanghai Composite Index gained 0.7%, with coal miners soaring 3.8% on average. Fortescue Metals (FMG.Australia) soared 5.1%, Rio Tinto (RIO) gained 1.9%, BHP Billiton (BHP) was up 1.8%.
Second, Brexit relieves pressure on the People’s Bank of China, which is trying to liberalize its exchange rate while keeping capital outflow under control. The deep slump in the British pound gives the PBoC another excuse to guide its yuan fix lower.
Indeed, the PBoC’s yuan-dollar fix is at a 6-year low this morning, even though the pound still tumbled 8.7% against the yuan in onshore trading.
Third, Wood raised emerging markets to Overweight “given the increased negative outlook on European equities given the political uncertainties raised by Brexit and given the negative consequences of even more negative interest rates and more negative bond yields for European banks.”
Wood continues to see gold price soaring to $4,200 an oz. G7 central bankers are crazy, in Wood’s view.
On Friday, the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) fell 3.6%, the iShares MSCI Emerging Markets ETF (EEM) was down 6.1%.
Source: Barron’s
