Last week, Chinese technology stocks, led by Alibaba (BABA), broke out. The companies benefited from oversold conditions throughout 2024. That changed when firms like JD.com (JD) and Tencent (TCEHY) also posted quarterly results. The Chinese government also announced long-awaited changes to its lending policy.
China is taking further steps to undo its “3 red lines” real estate policy. This resulted in real estate prices falling by as much as 80% in some cities. The lower lending rates and financial stimulus should help, albeit only slightly.
On May 17, China announced that it would ease mortgage rules. It would let local governments buy and convert homes to more affordable units. It will also address issues related to completing unfinished homes. These mandates are nothing new. Firms like Country Garden and Evergrande defaulted on mountains of debt.
Builders left homes unfinished for several years and now they are rotting. Investors may bet that the government will tear down and rebuild units. That would increase demand for raw materials, such as cement, copper, and wood. Already, copper prices closed last week at $5.08 at prices not seen since 2022.
Companies that produce copper include Freeport-McMoRan (FCX), Rio Tinto (RIO), BHP Group (bhP), Souther Copper Corp (SCCO) and Teck Resources (TECK-B).