China, COVID, commodities, rumours

Here were the rumours, from Friday across the weekend (see the tweet I am commenting on).

China reopening is inflationary, and very pro commodity demand. The converse is true, China’s lockdowns, and relatedly depressed economy, are a big part of why commodities have sold off over the past 6 or so months.

The AUD moved 3%, copper +7%, aluminium +4%, the BHP ADR’s by almost 10%, on the rumour.

And then China’s various officials came out and said “no, we aren’t loosening our COVID restrictions, we are absolutely sticking to strategy”.

But markets didn’t collapse back. Oil, and SPI futures have weakened, but on the whole, there’s a material net gain from Thursday night / Friday morning to now.

Hong Kong is still trading strongly. I frame it below as the “Yes Minister” feel, in which the more one denies the closer they/it/we are to the truth (this reference probably won’t work for anyone under 40, good show for those who remember).

But what to do in a fund for advice land. We’ve already got some commodity exposure, AWC, NCM, IPL, BHP, but not enough. The direct equities underperform with moves of this magnitude. Not by much, and there’s always the “up in absolute terms”. But still.

We’ve got some further commodity exposure in our value centric managers like Allan Gray, and Orbis, indeed quite a bit of it, but again perhaps not as much as one would have if they were surer of the China reopening story.

But, as I reference in my tweet above, it is very hard to buy in size on rumour. What is the basis. In any case, from a DAA perspective, a China reopening event will likely be quite positive for EM region as a whole, and those markets are so deeply depressed we can probably wait for confirmation of the story, and still make money adding after the fact.

No call to action, just trying to work it out.

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