I was reminded again last night how important Chinese demand remains for the materials and industrial sectors globally. Alcoa broke down aluminum demand by region, and though I had seen the statistic before, it is still incredible that China accounts for almost 50% of global aluminum demand. In fact, China accounts for a significant portion (more than half) of demand for a variety of industrial commodities.
The past 5 years in China might be one of the largest building booms the world has ever seen. And the investment implications have of course been just as massive. Going forward, with Europe depressed, and U.S. demand stable but not gangbusters, I think Chinese growth holds the key for global growth.
Here is a chart of the 3 major global indices (SPX for U.S. in red, SX5E for Europe in orange, and HSI for China in green) over the past 3 years:
Even though Europe and China have had stronger recent rallies, the outperformance of the U.S. over the past 3 years is still substantial. The European SX5E index is still negative in that period, while the Hang Seng is slightly higher after the recent rally.
The Hang Seng’s action over the next quarter will be key to see if global investors believe in the return of Chinese demand. The return of Chinese demand would help corporates sail through many other demand headwinds (like the debt ceiling negotiations) unscathed.
Markets overnight:
- Quiet session in Asia and Europe. Asian markets mostly higher, up between 0.25 and 0.75%
- Europe is up 0.25% in a seesaw session. SPX futures up 0.2% in sympathy.
- Alcoa up 2% on a better than expected number. Most positive aspect of the report was cost control, which improved gross margins
- The dollar and Treasuries slightly higher, while commodities are mixed