Home>Video>Chinese Real Estate a Warning Sign for Commodities

Chinese Real Estate a Warning Sign for Commodities

Sat, 28 Jun 2014

Sluggishness in the country's real estate sector doesn't bode well for the broader commodities market.


Video Transcript

Daniel Rohr: No country matters more to commodities than China. And within China, no single industry matters more to commodities than real estate. Much of the weakness we have seen in commodities over the past several months originates in the Chinese real estate market.

In the first five months of 2014, residential floor space sold declined 9%, meanwhile, residential floor space for sale increased 25%. So, on one hand we have got deteriorating demand, and on the other we have increasing supply, which sets the stage for weakness in the months to come.

That's bad news for the economy as a whole given how much of Chinese urban household wealth is tied up in real estate, how leveraged banks' balance sheets are to the fortunes of real estate, and how tied local government finances are to real estate.

And of course, if it's bad for China, it's bad for commodities, which is why we see further pressure on prices of commodities in the months to come, and why we'd suggest that if investors are going to have positions in mining stocks, they invest in those with very low costs, companies like BHP Billiton, Rio Tinto and Vale.

  1. Related Videos
  2. Related Articles
  1. Reasons to Be Bullish on Emerging Markets

    Concerns about Chinese growth, Russia, and global liquidity have driven the prices of several quality stocks to appropriate buying levels, says Oppenheimer manager Justin Leverenz.

  2. Approach the Mining Sector With Caution

    A likely slowdown in Chinese real estate will mean weaker demand for commodities such as iron ore and copper, but a few firms with sustainable low-cost positions should weather the storm.

  3. Danoff, Davis, Lynch: Stock-Picking Ahead of the Crowd

    The past Morningstar Manager of the Year winners favor credit card firms, split views on Facebook, address China's importance, extol executives' foresight for future growth and disruption, and much more in this panel presentation at the Morningstar Investment Conference.

  4. Follow the Money to Understand Your Stocks' Real Exposures

    Knowing the sources of a company's revenue, not just its country of domicile, is important for investors to get the actual exposures they want, says American Funds portfolio manager Rob Lovelace.

  5. Finding Value in a Challenging Market Environment

    In this special one-hour presentation, Morningstar experts share their takes on how investors can navigate a world with slightly overvalued stocks , an uncertain interest-rate environment, and a slow-growing economy.

  6. 2 Stock Picks With Miner Advantages

    Low-cost resources will allow these basic materials names to maintain their profit margins despite a slowdown in China .

  7. Has China Hit Its Growth Limit?

    China's historical growth drivers have started to plateau, but many untapped industries--particularly in the services sector--are set to take the lead, says Seafarer's Andrew Foster.

  8. Reasons to Increase Your Stake in China

    BaoCap's Kevin Carter says there's no imminent landing--hard or soft--in China , and with the country's 35% contribution to global GDP growth, investors should up Chinese exposure in the consumer and tech sectors.

©2017 Morningstar Advisor. All right reserved.