Markets: China's boon for the candidates

China’s latest economic data spell good news for the market – and for whoever wins Saturday’s election.

If the stock market seems only mildly interested in Saturday’s poll – because the chances of a change of government seem very high – it is because the latest Chinese data spells good news for whoever moves into the Lodge.

Manufacturing in the world’s second-largest economy rose to a 16-month high in August. China’s official Purchasing Managers’ Index is at 51. This is further proof the economy is rebounding as demand for Chinese manufactured goods around the world is increasing. That is positive for mining stocks, especially the iron ore producers such as Fortescue that are essentially leveraged to China’s economic cycle. 

Since June 24, the stock’s 52-week low, Fortescue’s shares have surged 49 per cent, while shares in BHP and Rio Tinto have gained 15 per cent and 13 per cent respectively over the same period.

Among other Western Australian iron ore miners, BC Iron shares are up 42 per cent and Atlas Iron is up a more modest 14 per cent, all outperforming the benchmark S&P/ASX200 index which is up 11 per cent since June 24.

The margins for Australian iron ore producers over four months has gotten better and better. The Tianjin iron ore spot price closed Friday at US$137.70 a tonne, 18 per cent above its June 24 price and up 25 per cent since the end of May, its 2013 low. The Australian dollar has fallen 3.3 per cent since June 24, and 15 per cent since April 11 when it began its downward slide.

Investors who have successfully ridden the share price gains of Fortescue and BC Iron may now worry if all the good news on China’s economy is out and profit taking will begin in earnest. Many may indeed take profits, wary of the volatile nature of the iron ore price and the shares that track it. The Tianjin iron ore spot price has fallen for three consecutive days.

Still, some investors may take profits and put their money in domestic cyclical stocks. They may now be somewhat more confident that Australia’s most important export market is on the mend and with it the local economy. Such a boost in sentiment toward domestically focused shares will undoubtedly help overall business confidence and the current or future occupant of the Lodge.

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