China’s rare earth stocks are investors’ new hedge against trade war as Beijing rolls out countermeasures against Trump

Expectations that China will cut overseas supply of rare earth have spurred at least 34 per cent gains in linked shares

But watch out – share prices could plunge if trade war is settled, analysts say

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Speculation is high that rare earths, used in everything from Apple’s iPhones to Tesla’s electric vehicles, will be employed as a high-stake bargaining chip in the US-China trade dispute. Photo: Reuters

Published: 8:16am, 17 Jun 2019Updated: 8:33am, 17 Jun 2019

In a twist, traders have found a hot new bet in China’s stock market that has churned out jaw-dropping gains specifically because of deteriorating US-China relations: rare earths.

While the benchmark gauge Shanghai Composite Index has remained in the doldrums over the past month amid the trade stand-off between Beijing and Washington, China Minmetals Rare Earth, China Northern Rare Earth (Group) High-Tech and other major producers of the elements have shot up at least 34 per cent, making them the hottest trade on the mainland’s exchanges.

A slew of recent high-profile moves by the Chinese government to stress the strategic importance of rare earths fuelled speculation that the raw material, used in everything from Apple’s iPhones to Tesla’s electric vehicles, will be employed as a high-stake bargaining chip in the US-China trade dispute. China is by far the US’ biggest supplier. Hype around rare earths has been in high gear since the Trump administration blacklisted Huawei Technologies, banning the Chinese telecom equipment maker from buying American chips and technology.

“If there is a disruption of supply, the hi-tech industries in the US will be affected and that’ll lead to an increase in rare earth prices,” said Ken Chen Hao, a Shanghai-based strategist at KGI Securities. “As long as the trade tension between China and the US carries on, the hot play on rare earth stocks will remain there.”

China dominates global supply of rare earths, 17 elements on the periodic table with names like europium and ytterbium that share similar chemical and physical properties. It is the world’s biggest refiner of the metals, accounting for 90 per cent of global production, while the US is the largest importer, with 59 per cent of its imports sourced from China.