Sector movers: Miners under pressure as focus turns to Chinese property sector again

Miners came under selling pressure at the start of the week as data revealing a modest slowdown in Chinese industrial profits called attention to the outlook for the country's property sector, a key driver for demand for multiple commodities around the world, including for copper and iron ore.

The rate of growth in Chinese industrial profits slowed from a year-on-year clip of 27.7% for September to 25.1% in October, according to the National Bureau of Statistics. That followed recent upward pressure on longer-term Chinese sovereign debt albeit admittedly only modest selling in Chinese shares as a result.

Adding to the negative sentiment perhaps, in a largely positive note on the outlook for global equities in 2018, strategists at Citi conceded that China's corporate debt markets were a key risk.

Striking a similar tone, on Monday strategists at Morgan Stanley expressed a broadly constructive view on global equities in the year ahead, but cooling demand in China was seeing acting as a a drag on the likes for copper.

Morgan Stanley said: "Our base case calls for moderating growth in the US and China to be offset by improvements elsewhere. But this hand-off will likely be tricky, and occurs against a backdrop of rising core inflation and less accommodation.

"[...] Copper's characteristic late-stage construction use may see demand supported at a stable level through 2018 even as China’s infrastructure investment slows and real estate markets cool. However, mine supply is also recovering following this year's extreme disruption, and we see a balanced market ahead rather than the tightness suggested by the current price level," Morgan Stanley said.

Adding to the selling pressure, analysts at Liberum reiterated their 'sell' stance on the likes of BHP Billiton (target price: 800p), Rio Tinto (target price: 2750p), Glencore (target price: 300p) and Anglo American (target price: 800p), citing Chinese authorities drive to stimulate rental demand in the country which would "cannibalise" demand for the building of new homes.

According to Liberum, "the Chinese property market, the largest driver of demand, is suffering from high inventory levels in Tier 3-5 cities which account for the majority of commodity demand. On the supply side, inventories are building and a wave of new capacity from the super cycle capex binge in copper and iron ore will continue to hit the market in 2017/18, with price elasticity of high-cost supply a key determinant of how low prices can go."

To take note of, traders were waiting on official and private sector purchasing managers' indices for China's factory sector that were set for release on Thursday and Friday.

Top performing sectors so far today
Automobiles & Parts 7,273.72 +1.63%
Gas, Water & Multiutilities 5,154.07 +0.80%
Electronic & Electrical Equipment 6,758.38 +0.50%
Life Insurance 8,700.53 +0.37%
Electricity 7,897.70 +0.36%

Bottom performing sectors so far today
Mining 17,256.10 -1.37%
Chemicals 13,797.88 -1.04%
Construction & Materials 6,324.98 -1.02%
Oil & Gas Producers 8,483.11 -1.02%
Software & Computer Services 2,425.22 -0.95%