Across The Border | The Chinese stocks that can be expected to soar with a dovish Fed

As the US Federal Reserve struck an unexpectedly dovish tone at the latest policy meeting, oil, gold and other metal stocks are expected to benefit from a softer US dollar outlook and increasing risk appetite of investors, according to analysts.

The Fed on Wednesday surprised markets by signalling only two rate increases in 2016, citing factors such as global economic uncertainty and volatile financial markets. That was significantly lower than the four increases hinted at the end of December.

In the wake of the new policy statement, the US dollar index (DXY), which tracks the greenback against a basket of other major currencies, had declined 1.9 per cent as of Friday morning. The WSJ dollar index, another closely watched measure of the dollar strength, also touched its lowest level in five months.

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The weakness in the greenback has since pushed up many USD-denominated commodities, including crude oil, iron ore, gold, copper and aluminium. April WTI crude has surged since late Wednesday, jumping to finish above US$40 a barrel on Thursday, driven by the dovish Fed statement and a scheduled meeting of major oil producers next month to discuss output cut. Copper prices have also gained more than 2 per cent.

“It has conceded the April rate hike is a non-talking point. And with only ten pips (percentage point) priced in for June, we should expect the US dollar to slide, triggered by a dovish Yellen. Especially against a backdrop of improving risk sentiment and commodity currencies,” said Stephen Innes, a foreign exchange trader at Oanda.

“With the road now paved, we could be in store for a substantial rally in commodities, EM (emerging market) currencies and gold,” he added.

Huang Zhen, an analyst at China’s Zhongda Futures, also said the prices of base metals, including copper, aluminium, nickel, and zinc, will be driven by expectations of fewer rate increases from the Fed and a further weakening in the US dollar, as well as rising oil prices.

Consequently, relevant stocks and sectors, including oil and metals, may benefit from a further rebound in commodity prices.