After being in the dumps for almost a month, metal stocks finally shone in the markets on Monday. The BSE Metal index was up over five per cent — the highest amongst all sectoral indices. The past month had seen some of the key metal stocks fall 20-30 per cent. Internationally too, prices of metals such as copper, aluminum etc. were up on the London Metals Exchange. China’s move to allow the Yuan to move from its dollar peg is the reason for the optimism in the sector, say experts.
“The dollar has fallen against all major currencies today, including the rupee. Since all commodity prices are quoted in dollars, so prices of these commodities have risen,” says Mr Kuljeet Kataria, head of commodities, Motilal Oswal.
Apart from metals, prices of crude oil and gold were also up on Monday. In fact, internationally, the price of gold touched a new high of $1,263/oz during the day.
A stronger Yuan is expected to make imports to China cheaper and spur domestic consumption says Mr. Atul Shah, the head of commodities, Emkay Research.
“Commodity demand from China could increase because of the move,” says Mr Gopal Agrawal, deputy CIO, Mirae Asset. Mirae Asset has some mutual funds based in China as well.
Apart from the lower prices, domestic consumption in China would also be spurred by factors such as the recent 10 per cent increase in factory wages, says Mr Agrawal.
If the Yuan is freed completely, it could go up to another 20 per cent against the dollar, Mr Agrawal says.