On Monday the Chinese government reported that the country’s economy slowed more than expected in July. Retail sales were crimped by tough new virus restrictions introduced toward the end of the month to contain fresh outbreaks. Retail sales rose by 8.5% near over year. Analysts had expected growth of 10.9%. Industrial production to a 6.4% year over year increase instead of the 7.9% in economist forecasts. Investment in fixed assets rose 10.3% year to year in the first seven months of 2021 against expectations for an 11.3% increase.
No big secret about the effects. China’s economy is the driver for global demand for commodities such as copper. And for demand for some key manufactured goods such as chips.
In the short-term that means we’re looking at a continued downtrend for commodity prices and for the stocks of commodity producers. And we’re looking at downward pressure on the stocks of chip and auto companies that sell into China.
Deciding what to do about the likely downward trend for the rest of 2021 gets complicated, however, because the longer term trend for a commodity like copper–with demand driven by growth in electric cars and renewable energy technologies such as wind–points clearly higher. As does the story in the auto and smart phone sectors for demand for computer chips.
My advice is to hang onto commodity and technology shares with big China exposure through this soft spot if those stocks are in a long term portfolio (and especially if they show substantial gains that might trigger a taxable event.) So I’m holding onto the shares of Southern Copper (SCCO) in my long-term 50 Stocks Portfolio, in my long-term Millennial Portfolio (On my subscription site JubakAM.com), and in my Dividend Portfolio (where I’m also influenced by the stock’s high dividend yield.)
But on the other hand I will be selling my shares of the United States Copper Index Fund ETF (CPER) out of my Perfect 5 ETF Portfolio (on my subscription JubakAM.com site) tomorrow (with a 6% gain since I added it to the portfolio on March 4, 2021) and I will be selling the Global X Copper Miners ETF (COPX) out of the Millennial Portfolio because I believe I’ll be able to buy an individual copper stock with a superior long-term growth story at a lower entry price near the end of this downward move in the commodity.