Top China Stock Picker Sees Sustained Rally in Commodity Shares

The rally in Chinese commodity producers has further to run for at least one top stock picker. A gauge of raw materials shares on the MSCI China Index has jumped 24 percent this year, the second-best performance among 10 industry groups. Mandy Chan, who manages $8 billion worth of assets in Chinese and Hong Kong equities for HSBC Global Asset Management, says improving profits, increased government spending and output cuts will support the advance by commodities and machinery makers. Investment, property and industrial drivers are helping to boost growth across the economy, with China’s official factory gauge rising to the highest in almost five years in March. As part of the Communist Party’s objectives for the year, Premier Li Keqiang said the nation will cut 150 million metric tons of coal capacity and 50 million tons from steel output. More than 500 billion yuan ($72 billion) of investment has been included in the central government budget this year, according to Li."We expect a faster take up in the PPP program this year to conduct infrastructure projects," she
said. "Our earnings forecast for some commodities producers are 20 percent to 30 percent above market consensus," she said. "Both pricing power and demand are coming back strongly. The earnings turnaround isn’t fully in the price yet."

Source: Bloomberg

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