Metal and mining exporters to feel pinch of Chinese slowdown, says LGIM

Legal & General Investment Management (LGIM), one of the biggest investors in the UK’s FTSE 100 companies, has warned that metals and mining companies could bear the brunt of any rebalancing of the Chinese economy away from manufactured exports.

The suggestion from LGIM is that countries and sectors which themselves export commodities to meet investment demand in China will see their businesses particularly hit by a shift in the economy stimulated by government policy to rebalance output more towards domestic consumption.

That shift in turn will mark a slower long term growth rate than has been the case in the past decade, as the rate of investment is slowed. Some sectors, for example, consumer electronics, will do well by the economic rebalancing, but those that have accounted for the bulk of gains from trade with China in the recent past may lose out.

“Taken at face value, the projected slowdown in aggregate import growth will have the largest impact on those countries with the largest overall trade exposures to China – namely the rest of Asia, Brazil and South Africa,” said LGIM emerging market strategist Brian Coulton.

Of developed countries, he added that those such as Germany, the US and Korea would instead do well through their presence in the automobile, agriculture and consumer electronics sectors. In contrast, Australia is set to suffer from a sharp slowdown in metal demand from China, he argues.

The developments outlined by Coulton are likely to weigh on UK investors, as the FTSE 100 index contains a considerable number of resources companies such as BHP Billiton, Rio Tinto, Antofagasta, ENRC, Glencore International, Kazakhmys, Vedanta Resources, and Xstrata.


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