China, More Than Trump, Fuels Commodity ETF Surge

November 29, 2016

YTD Returns For KOL


More recently, KOL got a boost from Trump's election victory. The president-elect is a vocal supporter of the U.S. coal industry, but Trump is secondary to the China-driven bullish trend already in place for the ETF.

Triple-Digit Gains In Steel ETF

Another industry where the China-Trump effect has been on full display is steel. Strong Chinese demand and supply fundamentals pushed steel prices sharply higher through the start of November. Then after Trump's victory, steel shot even higher to a 2 1/2-year high.

Trump's promise of massive infrastructure spending and trade policies that protect U.S. manufacturers―including steel producers―has been a boon for ETFs such as the VanEck Vectors Steel ETF (SLX). The ETF was already up big before the election, but November's rally of 23% pushed year-to-date gains to an eye-popping 109%.

Similarly, the SPDR S&P Metals & Mining ETF (XME), which holds steel companies, miners and coal producers, rose 24% in November and has risen 112% year-to-date.

YTD Returns For SLX, XME


Whether these eye-popping gains in commodities and related ETFs can be maintained is an open question. Some analysts seem to think so. The aforementioned Goldman Sachs recently upgraded commodities to an "overweight" for the first time in four years, saying that markets were entering a "cyclically stronger environment."

Goldman's analysts believe that coking coal and nickel will be two near-term beneficiaries of this environment.

Meanwhile, analysts at Morgan Stanley recently released a bullish report on steel stocks, remarking that "Trump’s $550 billion stimulus plan would increase steel demand by 20% annually for five years.”

The analysts added that "for the first time in a decade, we see a credible long-term investment case for steel equities."

Contact Sumit Roy at [email protected]


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