Morgan Stanley has identified certain commodity stocks that could benefit significantly as China implements measures to revitalize its struggling real estate sector and broader economy. This follows the Chinese central bank’s announcement of plans to support the housing market and reduce the reserve requirements for banks amid declining demand and slowing economic growth.
According to Morgan Stanley, these initiatives reflect an intensified “sense of urgency” and indicate that China is addressing deflation concerns seriously. Equity analyst Carlos De Alba noted that while more details on the policy and its implementation are necessary to fully evaluate the potential impact, analyst Stephen Cheung believes the measures could boost home sales and mitigate the decline in home prices in the short term.
Given this context, Morgan Stanley foresees a positive outlook for metals and mining stocks, which have lagged behind the S&P 500 by 25 percentage points since May. The firm anticipates further policy action later in the year could provide additional benefits to the sector. De Alba stated that amidst current macroeconomic uncertainty, the firm favors metals and mining equities with near-term catalysts or those tied to copper due to ongoing supply challenges.
Among the mining sector stocks, Morgan Stanley highlighted Freeport-McMoRan and Alcoa as top picks, with shares having risen approximately 22% and 17%, respectively, this year. Vale SA’s U.S.-listed shares were also noted as potential beneficiaries. The renewal of Freeport’s Grasberg mine agreement in Indonesia is cited as a potential catalyst, with a $58 price target suggesting a possible 20% increase from recent levels.
Additionally, Morgan Stanley believes U.S. Steel could be one of the biggest gainers from China’s stimulus measures, alongside shares of Nucor. U.S. Steel has been in the news due to its planned sale to Japan’s Nippon Steel, worth nearly $15 billion. This deal has faced opposition from the Biden administration, which, as reported by NBC News, plans to block the sale. Consequently, U.S. Steel shares have dropped more than 25%.
Overall, Morgan Stanley views the recent developments in China as setting a favorable stage for select commodity stocks, primarily within the metals and mining sectors, in the coming months.
