China Yuan Policy Shift Lures Pengana, AMP Capital to Commodity Shares
China’s move to relax its currency peg to the dollar is luring Pengana Capital Ltd. and AMP Capital Investors Ltd. to commodity stocks as they bet on rising demand in the world’s third-largest economy.
Pengana Capital has been buying iron-ore producers, said Tim Schroeders, who helps manage about $1.1 billion in Melbourne, declining to be more specific. AMP Capital, with more than $90 billion of assets, is considering increasing its holdings of commodity stocks, strategist Nader Naeimi said.
China’s yuan gained the most in five years yesterday after the central bank pledged on June 19 to make the currency more flexible. The global economy is “gradually recovering and the upturn in the Chinese economy has become more solid,” the People’s Bank of China said in a statement announcing its yuan action. An appreciation makes it cheaper for Chinese companies to buy iron ore and other metals priced in other currencies.
“Increased purchasing power by China would be good for raw-material producers,” Pengana’s Schroeders said. “We’ve just been continuing to accumulate iron-ore producers in particular through periods of price weakness, and other commodity producers generally.”
In its statement, the PBOC ruled out a one-time revaluation of the currency that’s been held at about 6.83 yuan per dollar since mid-2008. The currency advanced 0.42 percent to 6.7976 per dollar yesterday, the most since July 2005, according to data compiled by Bloomberg. It weakened 0.2 percent today to 6.81, the most since December 2008. The yuan may climb to 6.7 per dollar by Dec. 31, according to a Bloomberg analyst survey on June 20.
An appreciation of the yuan, also known as the renminbi, will benefit exporters and Chinese employment more than it hurts them, the central bank said in its statement. A more flexible currency would also help to curb consumer-price gains, asset bubbles and dependence on exports for growth, it said.
The policy shift may relieve pressure on the Chinese government to step up measures to control economic growth, AMP Capital’s Naeimi, who’s based in Sydney, said yesterday. He declined to name specific commodity companies his firm may buy.
A gauge of raw-materials stocks in the MSCI Asia Pacific Index climbed 3.5 percent yesterday, the most of 10 industry groups. The materials measure is the worst-performing sub-index this year with a 6.2 percent decline. It declined as much as 1.2 percent today.
World’s Largest Consumer
“Commodities will benefit the most out of this because commodity sectors are most leveraged to Chinese growth,” said Naeimi. “They were lagging a bit because of the hesitation or fears over Chinese tightening.”
The London Metal Exchange Index has tumbled 11 percent this year amid speculation global demand will drop as property curbs in China and Europe’s debt crisis will slow the global economy. China is the world’s largest consumer of materials including iron ore, copper and soy beans, and is the second-biggest energy consumer. The index climbed 2.2 percent yesterday.
The shift in China’s yuan policy drove the Shanghai Composite Index up by 2.9 percent yesterday, the most since May 24. It rose 0.1 percent today. The Hang Seng China Enterprises Index, which tracks the so-called H shares of 40 mainland companies in Hong Kong, jumped 4.4 percent yesterday and lost 0.6 percent today.
The Shanghai Composite, which tracks the bigger of China’s stock exchanges, has tumbled 21 percent this year, the third- largest decline of major benchmark indexes tracked by Bloomberg. Stocks on the gauge trade at 15.1 times estimated earnings, compared with 24 times at the start of 2010.
Pengana Capital’s Schroeders favors Brazil’s Vale SA, Canada’s Consolidated Thompson Iron Mines Ltd., and Australia’s Rio Tinto Group and BHP Billiton Ltd.
Shares of BHP, the world’s largest mining company, have fallen 8 percent this year in Sydney, while Rio Tinto’s have slumped 3.7 percent. Vale SA dropped 0.8 percent in Sao Paulo. Rio and Vale both count China as their biggest market. Consolidated Thompson has gained 16 percent in Toronto.
China’s new yuan policy is “positive not only for China but for trading partners as well,” Schroeders said. “It definitely shows a willingness by the Chinese authorities to undertake currency revaluation. That can be good in terms of lessening imbalances elsewhere in the global economic system.”