Originally Posted, 30 September 2024 – Industrial metals get a policy boost from China
Key Takeaways
- China’s broad stimulus package aims to boost economic growth, with markets reacting positively.
- Industrial metals stand to benefit from China’s policy measures, particularly in infrastructure.
- Early signs show the stimulus is already lifting investor sentiment and supporting the metals market.
- Related Products WisdomTree Energy Transition Metals, WisdomTree Industrial Metals, WisdomTree Copper
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.
WisdomTree Energy Transition Metals (WENT) offers a thoughtfully curated basket of 10 commodities critical to the energy transition. These include aluminium, cobalt, copper, lead, lithium, nickel, platinum, silver, tin, and zinc. The basket is designed in partnership with industry experts Wood Mackenzie, who identify key commodities in the energy transition and weight them based on their demand growth prospects and near-term supply-demand balance.
WisdomTree Industrial Metals offers an alternative for those aligned with the Bloomberg Commodity Industrial Metals Subindex. This basket includes five key commodities – copper, aluminium, zinc, nickel, and lead – tracking the Bloomberg Index.
WisdomTree Copper is an option for direct exposure to copper. It’s one of WisdomTree’s many single-commodity exposures, allowing investors to tailor their strategies according to their market views.
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
Disclosure: WisdomTree Europe
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Please click here for our full disclaimer.
Jurisdictions in the European Economic Area (“EEA”): This content has been provided by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Jurisdictions outside of the EEA: This content has been provided by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from WisdomTree Europe and is being posted with its permission. The views expressed in this material are solely those of the author and/or WisdomTree Europe and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
