Aussie miners to benefit from changes in Chinese property sector: Morningstar
Equity analyst Jon Mills explains how the change in Chinese government restrictions impacts Australian Miners.
Jon Mills: Yes. So, for the past two years, China has been trying to strengthen its property market and that's included trying to reduce the amount of leverage, both at the real estate developer level and also at the consumer level. So, those who buy properties for – to live in and also for investment.
Now, what has happened as a result of that is that it's led to falling prices in real estate, and it's led to a number of real estate developers getting into financial trouble. So, Evergrande is a good example where they basically defaulted on their debt. So, now the government has started to loosen those restrictions, and that's included providing loans and credit support to the real estate developers to allow them to complete these projects and also in providing loans and help to ordinary Chinese to allow them to repay their loans for the properties they bought. Now, what that's done is that's obviously try and – well, the intention is to try and stabilize the property market.
It's actually bullish for Aussie miners such as BHP Group (ASX:BHP), Rio, and Fortescue, because China, as with a lot of commodities, is the biggest source of demand for C1 iron ore and also copper. And so, if China is successful in stabilizing its real estate market, that's a big source within China of iron ore and copper. And so, it should be bullish for the likes of BHP and Rio, as I said.
Yes. So eventually, I think, China will reopen but not yet. And so, at around the same time as they announced these loosening of the restrictions on the property market, they've started to loosen restrictions on – or as part of their zero-COVID policy. So, they're not going to track secondary contacts of people who've got the disease, for instance. And I just think that's a – that will be the start of an eventual Chinese reopening, but probably after winter for obvious reasons. I mean, the virus is more dangerous during winter, and also, they need to inoculate the senior Chinese citizens and those with pre-existing conditions with a new vaccine that actually protects against Omicron. Their current vaccine doesn't really do that. So, once they've achieved that, then I see China – well, I think China will reopen. And again, that should be bullish for Aussie miners.