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Copper analysis and China reopening basket: Bull market takes off

By Piero Cingari

10:01, 11 January 2023

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In this article:
AUD/USD
AUD/USD
0.70396 USD
-0.00166 -0.240%
Copper
Copper
4.2110 USD
0.017 +0.410%
HK50
Hong Kong 50
21785.0 USD
-365.5 -1.660%

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Rendering of China flag on bar chart concept of economic recovery after Covid-19 crisis – Photo: Shutterstock

The Chinese economic reopening has been one of the most significant factors affecting global markets in the past two months, spurring a rally in Chinese growth-sensitive assets such as copper, the Hang Seng 50 index (HK50), the Korean won, and the Australian dollar (AUD/USD).

A basket that tracks the Chinese economy's reopening has already increased by about 22% since early November, substantially outperforming the global stock market benchmark (MSCI ACWI index). Copper has now retraced more than half of the 2022 bear market, confirming a potential reversal of the major bearish trend. 

Tracking the Chinese recovery trade: 4 assets to watch

China reopening basket vs world stock market – Chart:

China's policy shift in Covid management in early November was a watershed moment for the assets most directly linked to Chinese economic prospects.

The China reopening basket, which is equally weighted with copper, Korean won,  Australian dollar, and the Hang Seng index, has outperformed the global stock market (MSCI ACWI index) significantly over the past eleven weeks.

Since November 1st, the China reopening portfolio has increased by 22.3%, while the MSCI All-Country World Index has increased by only 6.8%. Due to the fact that the overall volatility of the China reopening basket has been lower (19.2% versus 21.8%), the Sharpe ratio has been even more positive (9.61 vs 1.89), indicating a stronger risk-adjusted performance. 

The Hang Seng index, which has risen by 45% since November, has contributed the most to the portfolio's weighted return of 11%, followed by copper, which has contributed 5.3%.

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USD/JPY

130.08 Price
-0.350% 1D Chg, %
Long position overnight fee 0.0062%
Short position overnight fee -0.0153%
Overnight fee time 22:00 (UTC)
Spread 0.010

GBP/USD

1.23 Price
-0.360% 1D Chg, %
Long position overnight fee -0.0041%
Short position overnight fee 0.0005%
Overnight fee time 22:00 (UTC)
Spread 0.00013

GBP/JPY

160.07 Price
-0.710% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.027

EUR/USD

1.09 Price
+0.020% 1D Chg, %
Long position overnight fee -0.0083%
Short position overnight fee 0.0026%
Overnight fee time 22:00 (UTC)
Spread 0.00006

Copper technical analysis: 50% Fibo retracement breakout

Copper technical analysis as of January 11, 2022 – Chart: Capital.com, Source: Tradingview

The $4.10/pound price resistance level for copper, which represents the 50% Fibonacci retracement of the 2022 low-to-high range, has been recently breached.

This might be a significant confirmation of the trend reversal, with the price action presently lingering near a crucial support-resistance zone in 2022. The key moving average (50DMA and 200DMA) dynamics are poised to form a golden cross, supporting the brown metal's bullish technical picture.

On the RSI front, though, overbought circumstances are beginning to develop, which may call for some caution in this case.

Overall, if the reopening momentum in China continues and incoming global macro data continues to support the view that a recession in 2023 will be avoided, copper prices will likely continue to rise, with a first target of 4.30 (61.8% Fibonacci) and a second target of 4.62 (78.6%). On the downside, 3.94 (December 2022 highs) serves as the nearest support, followed by 3.85 (38.2% Fibo) and 3.72. (end-December 2022 lows).

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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