Mining Stocks Revive as China May Be Looking to Stimulate Economy

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The Shanghai Composite index rocketed by 7.6% yesterday, on speculation that the Chinese government would introduce measures to protect the country's economic growth, as the global economy continues to cool. Amid the speculation, investment bankers JP Morgan crystallized the idea that the Chinese government was considering stimulus spending of as much as CNY 400bn (about USD 58bn), and may also ease monetary policy this year. Resource stocks reacted positively...

The Shanghai Composite index rocketed by 7.6% on Wednesday, on speculation that the Chinese government would introduce measures to protect the country's economic growth, as the global economy continues to cool. Amid the speculation, investment bankers JP Morgan crystallized the idea that the Chinese government was considering stimulus spending of as much as CNY 400bn (about USD 58bn), and may also ease monetary policy this year.

Resources stocks reacted positively; Shenhua, the gigantic Chinese coal miner, recorded a one-day gain of nearly 9% in its stock price. Gold miner Zijin jumped by 10%. The positive sentiment spread to other markets, with emphasis on value seeking after the huge sell off of resources stocks starting in mid-May, and accelerating especially hard from mid-July as the euro's value hit a blow off against the dollar. Since then, crude oil prices have tumbled by 20% and more, dragging practically all other commodities down as well.

Over the past while, the world's top 40 mining and oil stocks have lost a combined USD 1.7 trillion in value, but clawed back just over USD 100bn of that during trade on Wednesday. In Australia, BHP Billiton, the world's biggest diversified resources stock, rose nearly 5% on the day, as did its intended takeover target, Rio Tinto. The two stocks were later to gain up to 7% and more in London trading. The gains held even after the dollar turned stronger in afternoon New York trade, forcing down crude oil prices by USD 4 a barrel, and triggering sharp reversals in most other traded commodity prices.

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