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China’s bid to kill a red-hot commodity rally puts stocks cherished by BlackRock, Vanguard in limbo

  • Chinese raw-material producers lead best-performing industry group within CSI 300 index with a gain of 17 per cent this year
  • Fundamentals will prevail as China’s clampdown on speculation and hoarding to break the camel’s back, BCA Research says

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A worker gets copper solution for conducting pouring work at a factory in northern China's Hebei Province in May 2021. Photo: Xinhua
Zhang Shidong
The sharp fall in prices for copper, steel and iron ore is denting the outlook for some of China’s biggest commodity-linked stocks cherished by global funds, putting this year’s market’s best-performing industry group in limbo.
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The headwind is coming from the nation’s top political leaders who are keen to protect its economic recovery, after prices at factory gates surged in April by the most in three years on higher commodity prices.

Premier Li Keqiang singled out rising raw-material prices three times in his regular State Council meetings in the past two weeks, vowing harsh punishment for misconduct such as hoarding, while promising to increase supply to douse the euphoria.

“The ‘shouting’ from the top has hit commodity trading hard, but it will probably take a few more rounds to eventually extinguish the zeal,” said Hong Hao, head of research at Bocom International in Hong Kong. “We still detect sporadic but not yet prevalent speculative fervour.”

A sub-gauge of Chinese raw material producers has risen 17 per cent this year, outpacing the 2.3 per cent gain in the CSI 300 Index tracking the broader market in Shanghai and Shenzhen. Over a 12-month stretch, they surged 79 per cent versus 38 per cent for the market.

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