Wondering Why Resource Names are Down This Morning?
Shares of resource names dropped Monday morning: Cliffs Natural Resources (NYSE: CLF) fell over 3%, Freeport-McMoRan (NYSE: FCX) tumbled nearly 1%, and Southern Copper (NYSE: SCCO) was down over 1.30%.
To be fair, the broader markets were likewise trading in the red; the S&P 500 shed about 0.22%. But resource names were leading to the downside.
The culprit was China: shares of the Shanghai Composite fell over 3.6% Sunday night after the Chinese central government announced a 20% tax on profits from the sale of homes. China's property market has been notoriously frothy over the last several years, attracting a host of short sellers (most notably Jim Chanos).
The tax on homes, then, might serve as an appropriate response to curb excessive speculation. Unfortunately for investors in Chinese stocks, however, it sent the market plummeting. Chinese real estate stocks were hardest hit, falling around 10%.
China, as the world's second largest economy, is one of the world's largest importers of natural resources, and the primary source for the growing demand the world's seen for resources over the last few years.
Australia's economy is particularly exposed to China. Roughly 20% of Australia's economy is dedicated to mining, and most of what Australians dig up is ultimately shipped to their Chinese neighbors. Shares of the iShares MSCI Australia Index (NYSE: EWA) fell over 1% Monday.
Whether or not China's economy would experience a “hard landing” was a major investment debate over the last two years. The Shanghai Composite rallied sharply to end 2012 on a high note -- silencing the critics. But now, with the Shanghai tumbling so significantly in a single session, the debate over the health of the Chinese economy might resume in full force.
The iShares FTSE China 25 Index Fund (NYSE: FXI) fell over 2% early Monday.
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