A research note from Morgan Stanley out in the last 24 hours is making a bold call on the China reopening:
“.. the market is still under-appreciating the far-reaching ramifications of [China’s] reopening. .. the current situation is on par with that in late 2008 / early 2009, with many investors insufficiently exposed to what is likely a key alpha driver ..”
MS believes the China consumption engine will kick into high gear during 2023, and lead equities higher in the process. Early 2009 was a memorable period in market history primarily due to the powerful whipsaw that took place in risk assets towards the end of Q1 2009. China went into full stimulus mode virtually at the same time that the Fed launched the original QE 1.0 (the US Treasury was also implementing TALF, TARP, etc.).
This double-barreled (more like quadruple-barrel if we include Europe, Japan, etc.) global stimulus led to one of the most powerful market rallies I've seen in my lifetime. And what made it all the more memorable is that this rebound occurred during a time in which mainstream media headlines were unanimously downright dour.
There are some similarities between January 2023 and January 2009. However, I believe there are many more differences than similarities, including the fact that we are not coming off a true "crisis". Regardless of the differences, a declining Chinese population and sputtering economy (largely due to China's zero-covid policy) are likely to prompt the government of China to continue to navigate a full economic reopening.
If we forget about the macro wall of worry for a moment and simply tune into price action. Thus far in 2023, copper is confirming Morgan Stanley's bullish thesis:
Copper (Daily)
Markets are forward looking and the strong rally in copper to begin the new year is sending a message about what's to come in 2023. While copper is a globally traded commodity, I believe the market's message has a lot more to do with China than the rest of the world.
The long term structural drivers for a copper bull market are undeniable. However, we should also be cognizant of the fact that various technological advancements could improve recoveries from the multitude of low-grade bulk tonnage copper deposits currently sitting dormant around the globe. This could bring a significant amount of copper supply online once the market reaches an 'incentive' price (probably higher than $4.30/lb).
With that being said, there doesn't seem like there could be a much better time for an exploration company to make an economic scale copper discovery in a viable mining jurisdiction.
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