A potential rotation in the Australian share market is gaining attention, with investors possibly shifting from Commonwealth Bank (CBA) to miners such as BHP and Rio Tinto. This theory suggests CBA’s strong performance would wane as investors seek value in attractively priced mining stocks. Since June 24, CBA shares have decreased by approximately 4.7 per cent, while BHP shares have risen by 13 per cent and Rio Tinto by 11 per cent. While a similar swing occurred last September, the current shift is being closely monitored by fund managers.
The rotation is supported by an increase in iron ore prices, which recently rebounded to around $US97 a tonne. This is partly due to signals from the Chinese government indicating support for its property sector, a significant driver of steel demand. Despite these positive noises, actual stimulus measures have been limited, with recent conferences yielding little in the way of concrete action. China’s property sector faces challenges, including declining new home sales and falling prices.
Despite property sector woes, BHP CEO Mike Henry noted resilient demand, driven by China’s export base and domestic consumption. Investment in renewable energy and electricity grids also bolsters demand for steel and copper. However, Westpac’s Robert Rennie points out unusual trends in the Chinese steel market, with surging iron ore imports coupled with low steel production, suggesting stockpiling.
Economists caution that China’s economy still faces headwinds, including slowing retail sales, fixed asset investment, and deflation. Analysts like CBA’s Vivek Dhar believe that only direct government purchases of excess housing inventory will stabilise the property sector and alleviate financial stress on developers. The miners that ASX investors are moving into are also hoping for Chinese stimulus.
