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The Australian resources stocks fell Monday after Asian indices and US equity futures reversed lower, dragging the ASX200 down to 2-week lows following disappointing Chinese industrial profit growth. Profits at China’s industrial firms extended gains for a third month in October but were well below expectations. The 2.7% year-on-year rise saw profit growth narrow back to single digits after an impressive 11.9% increase in September and a 17.2% gain in August, suggesting more policy support from Beijing is needed to help shore up growth in the world’s second-largest economy as we head into 2024.
- The volatility of profits and divergence across various sectors/firms is significant as businesses remain sensitive to input costs, with the rebound in energy prices partly driving the slowdown – almost everybody wants the oil price down!
The Chinese stock market ended down -0.7% as it continues to bounce around 5-year lows. The negative read-through for resource stocks is an easy one to comprehend with a dormant major consumer not good for prices and profitability, e.g. Crude oil initially fell -1.5% following the news. We remain comfortable with our “accumulate into weakness” stance towards the Resource Sector, but we will need to see some improvement in the Chinese economy to deliver healthy, sustainable gains – MM believes Beijing will successfully kick-start its economy in 2024. We saw on Monday that investors are in a fickle mindset with Christmas less than four weeks away:
- Sandfire Resources (SFR) -2.4%, Fortescue Metals (FMG) -2.1%, South32 (S32) -1.6%, and BHP Group Ltd (BHP) -1.5%.
The ASX200 drifted lower on Monday at the rate of around 10 points per hour, resulting in a disappointing -0.75% conclusion after a promising start to the day. Only the Tech Sector managed to close higher, and as discussed earlier, the heavyweight resources stocks were the main drag on the index, although over 65% of the main board closing lower didn’t help. Within the Resources Sector, the lithium stocks experienced another poor day at the office while the gold stocks advanced in tandem with gold posting fresh 6-month highs.
- The ASX200 is poised to open up marginally higher following a mixed session on Wall Street that ended with the S&P500 down 0.2%, better than the futures were suggesting during our time zone.
This morning, we’ve briefly looked at three stocks/sectors that caught our attention on Monday, which largely saw selling steadily wash through the whole market from the opening bell:
