China Unlock Good for Commodities …Not Good for Equity Market

It's a golden time for commodities and a nightmare for equities in the coming days or months.  We will significant gains in commodity markets but massive pain for equities and for inflation becoming a longer Halloween. The winter was predicted to be tough for the EU and US but now it seems it’s going to be the toughest. The reopening of the Chinese economy from the covid lockdowns will get a significant rise in industrial commodity inflation which will impact Indian markets too. In the last 4 to 5 months industrial inflation was pretty low but now it’s getting reflected very quickly about the change of course of industrial inflation. Chinese lockdown getting relaxed or removed in the coming days.  It’s now expected that over the next 3 to 4 months the global economy will find more inflation elevated from the industrial segment making household savings to be more painful. You will find equities and paper assets like debt both under pressure in this month and the following.

We find that Hang Seng Tech jumped 7.8% and the China Yuan strengthened as speculation mounted that policymakers are making preparations to gradually exit the stringent Covid Zero policy that’s been the biggest bugbear for investors. Further, China's commodity futures rallied at night session, with fuel up 4.1%, low sulfur fuel oil up 2.9%, nickel up 2.7%, IronOre up 2.1%, coke up 2%, coking coal up 1.8%, crude oil up 1.8%, tin up 1.8%, zinc up 1.7%, copper up 1.5%. OTT.

Those who are betting that the Chinese unlocking of the economy will be speculative and will not close immediately well if we look at the macro numbers of china we find clear indications it cannot afford to have any more poor growth numbers.

Crude will witness the biggest gain in the coming months and might breach $110 or $115 per barrel. But the industrial inflation will impact the profit margins and will complete the global fund managers to reshuffle the allocations based on sector impact and more focus will shift to conservative sectors due to the rising battle of interest rates and inflation rising from the 

Gold and silver will find a significant rise in prices as inflation increases and equity markets gets into the jitter phase impacting the rise in demand for Gold and silver.  OPEC+ output cut followed by Chinese demand getting back and more demand for crude as shifting from gas leads to a significant increase in prices and would impact equity markets. 

Margins will get squeezed further and many companies and families will be filing for bankruptcy. Bankruptcies in the UK are on the rise and hit a 10-year high. In September, 635 companies in the largest Nordic nation went bankrupt the highest level since May 2020 --increasing by 38% from a year earlier, according to data from credit reference agency UC. These numbers will increase more as industrial inflation will engulf major companies and makes them hard to survive.

Reshuffle of the pension and sovereign wealth fund portfolio will give direction to the markets and this will not be easy. At the same time, U.S Fed might place a slow rate hike but it all depends upon how inflation impacts the whole economy.

So in the coming months, we will witness global markets being extensively volatile followed by long-term guidance by big broking houses to be very weak enough and further impacting the portfolio rebalancing act.

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