Company Interview / Golden Week, iron ore moment?

Gary Ng from Natixis shares his views on the recent rally in the Chinese market, describing it as extraordinary and driven by Chinese stimulus and a substantial cut from the Federal Reserve. However, he emphasises that sustainability hinges on improvements in corporate profits and economic fundamentals.

Gary points out that the Chinese government's coordinated approach to communication aims to boost market confidence and meet growth targets. He expects further details on state sector solutions and consumer enhancements, which are crucial for a broader economic recovery in China. The sectors likely to benefit include commodities, retail, and technology, depending on stimulus outcomes.

Regarding Australia, Gary highlights the nation's strong ties with China through commodity trading, especially iron ore. Improvements in Chinese construction activities could lead to increased exports from Australia. He notes recent sharp rises in iron ore prices and suggests more positive developments could bolster Australian commodity exporters even further.

Full unedited transcript below:

0:00

Put the focus on the Asian economy and find out if this rally, this extraordinary rally in China, has legs. Gary Ng from Natixis joins me now. Gary. Hi. Welcome. I was speaking to a guest earlier and when I mentioned the rally, you know, in Hong Kong off the back of that Chinese stimulus, he just sort of shook his head saying, you know, it's it's hard to to get a grasp on how big some of these market moves have been. So give us your perspective.

0:29

Well, indeed. I think it's quite unbelievable to see such a big rally in such a short time. Some may have even described that it is once in the century. Of course. Um, we do see that, um, you know, uh, from the of, um, like fundamental perspective, there has been changes in what people expect on the Chinese stimulus. And on the other hand, there's also this a jumbo cut from the fed, which has also helped the sentiment in Hong Kong. But where did this can really continue and be sustainable? Really depends on whether corporate profits can pick up. Because much of this increase is really based on the liquidity injected from the PBoC, which has led to improvement in sentiment. But at the end of the day, if there's no improvement in the economy, the investors will wake up. So I do think that there may be still a bit of way to go, especially if there is a press conference held by multiple ministries in China, which may actually offer the market more hope, but we will need to probably see some correction

1:29

as soon if, um. I mean, basically nothing can go up that quickly forever. Yeah, exactly. Nothing goes in a straight line. What about this conference that's being held tomorrow? It comes after the extraordinary conference between the PBoC and other government ministries just a couple of weeks ago, where they detailed some of the stimulus plans and a bit more context. I mean, it's pretty extraordinary that we're seeing this public facing and information coming out about the plans. Don't you think?

2:02

Well, I think that's true. I think I'll compare to one of the or some of the policies that we have seen before. We do see a more coordinated approach in terms of communication from, uh, basically a top tier, uh, and of the, uh, government. So I think, um, from the growth perspective, uh, the government is a bit worried that it may not be able to achieve the growth target. And it now actually think that, well, um, probably it's time to really, uh, support the market and improve the confidence of some of the fundamental workers in the market. So I think this is, uh, where are we are seeing in the, uh, Chinese policymaking, uh, landscape. And I think after tomorrow, uh, we are likely to see maybe a bit more details, especially on the state sector, to actually see whether there would be a, you know, a better solutions to the problem that can be more convincing to the market. We would probably see a bit more on the consumption side. I mean, at the end of the day, um, these are really the two big problems that the Chinese economy is

3:02

facing right now without, um, you know, a solution, then it's quite hard to really see a broader recovery beyond the market rally that we are seeing right now. Right. So we need to still focus on fundamentals, and we need to see the rubber hit the road, so to speak, when it comes to, you know, further stimulus in China. And of course, we have to wait to see how the consumer in fact reacts. But if we do see a reset of sentiment, Gary, um, what sectors could be the winners?

3:33

Well, um, those who has fallen the most because of the weaker confidence may actually be the winners, especially for those which will be the, uh, basically the target of subsidies. And the first I would look at is really about the commodity side, um, because of the growing infrastructure, um, spending and also improving state sentiment that can naturally, you know, uh, positively influence, uh, some of the demand on iron or copper, etc.. So I think that will be the more commodity traditional side. And second, if consumer sentiment really improved, then we would probably also see a recovery in a lot of retail related sectors that consumers will actually be willing to spend more money on multiple fronts. And lastly, um, well, because of the big pressure on the market, fiercely on the tech sectors, and if there is a broad recovery in the sentiment and the tech sector will also be one of the beneficiaries. So I think this three

4:33

sectors are well positioned to capture the opportunities of Chinese stimulus. But of course, it still depends on what China will offer and whether the market believed this story. Wow. Um, yeah, there's a lot there's a lot still to come to the fore. But in your view, how does Australia, how do Australian companies, Australian sectors stand to benefit if we do see this change in sentiment?

5:00

Well, indeed, a lot of discussion has been talked about some of the smaller sectors on wine, lobsters, etc. that um, probably, uh, there will be more, uh, you know, lifting of the restrictions. But for Australia, I think the most direct connections with China will still be on commodity trading, especially through iron ore, etc.. So, um, I think we're in a scenario that if, uh, there is an improvement in some of the construction activities are in China, then Australia is well positioned to export more, especially with the warm ties between the two governments right now. And I think the market pretty much already, uh, banking on that. We do see iron ore prices increase in a very sharp way over the last week. So, I mean, if we start to see more positive news, especially for some of the, uh, data coming from the, uh, after the golden week, the consumers may be willing to, uh, spend more money or for home sales, it may actually improve in the next two weeks. Then it could be possible to see further

5:59

upside on some of the commodity exporters in Australia, um, as well.