The ASX mining share sector is in focus today on the news that China is going to launch new financial stimulus.
This could impact businesses like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG), Mineral Resources Ltd (ASX: MIN), Champion Iron Ltd (ASX: CIA), South32 Ltd (ASX: S32) and Sandfire Resources Ltd (ASX: SFR).
If the Chinese economic stimulus can boost economic activity in the country, it will hopefully boost demand for commodities like iron, copper and other resources that Australian miners produce.
Chinese stimulus to help ASX mining shares?
According to Reuters, China has committed to increase its budget deficit, issue more debt and loosen its monetary policy to “maintain a stable economic growth rate” as it prepares for a possible trade war with the US with Donald Trump returning to the White House.
China’s announcement came from state media after the annual agenda-setting meeting of China’s leaders, which is called the Central Economic Work Conference (CWEC).
Reuters reported that Chinese national broadcaster CCTV said after the CEWC meeting:
The adverse impact brought by changes in the external environment has deepened.
Earlier this week, Reuters also reported that China’s leaders and policymakers are considering allowing the Chinese currency to weaken next year to mitigate the impact of US trade measures.
Reuters reported that the country’s Politburo said China would switch to an “appropriately loose” monetary policy stance and “more proactive” fiscal levers, as well as stepping up “unconventional counter-cyclical adjustments”.
The CEWC highlighted there would be a higher budget deficit and more debt issuing at both the central and local government level.
Reuters reported on comments from Zhiwei Zhang, chief economist at Pinpoint Asset Management, who said:
The direction is clear, but the size of stimulus matters, which we probably will find out only after the U.S. announces the tariffs.
Final thoughts
This could be very useful for the miners if implemented, though BHP shares, Rio Tinto shares and Fortescue shares already got a boost earlier this week on speculation there could be more stimulus.
But, I wouldn’t buy ASX mining shares on the news, at this stage, because the market has already factored in the good news. I think it’s better to buy ASX mining shares when the resource price is low and we can invest when share prices are depressed.
