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Commodity Review: Trading The China Syndrome

|Includes: AA, BHP, CH, EWZ, FCX, Aberdeen Indonesia Fund (IF), SCCO, VALE

As China goes, so goes commodities according to commodity market watchers and stock predictions. After all and as the workshop of the world, China uses more copper and energy than any other country. However, the data coming out of China is not looking so rosy for the commodity markets and for global economy in general.

To quickly recap last week's commodity action: Commodity markets took a hit early in the week when China downgraded growth but investor and trader sentiment later recovered on news of the Greek debt swap deal plus positive US employment data.

Since then, the yuan has weakened after reports that Chinese exports have grown at a slower pace than forecasted. Specifically, exports from China rose 18.4% last month from a year earlier and imports were up 39.6% while analysts had forecasted a 31.1% rise in exports and a 31.8% increase in imports. There are also concerns about China's factory output and consumer retail activity while China's GDP growth target for 2012 has officially been set at a "mere" 7.5% verses analyst forecast calling for 8.5% for both 2012 and 2013.

So what does all of this negative China economic data mean for commodity investors and investors in general? To begin with, a slowdown in China or the commodity markets could impact commodity rich countries like Indonesia, Brazil and Chile. Hence, investors might want to keep an eye on our stock predictions for and then possibly consider shorting country closed end funds or ETFs such as the Aberdeen Indonesia Fund (NYSEMKT:IF), the iShares MSCI Brazil Index ETF (NYSEARCA:EWZ) or the Aberdeen Chile Fund (NYSEMKT:CH).

Likewise, any long term slowdown in China will likely impact major copper mining stocks like Freeport-McMoRan Copper (NYSE:FCX), which is already down more than 1.5% in today's trading, and Southern Copper Corporation (NYSE:SCCO), a major integrated copper producer that also produces molybdenum, zinc and silver in Chile, Mexico and Peru.

Other commodity and mining stocks investors might want to check Next Candle stock predictions for and selectively consider shorting would be:

  • Alcoa (NYSE:AA), a major producer of aluminum that has just been removed from the S&P 100 Index (OEX).
  • BHP Billiton (NYSE:BHP), an Australian mining giant and Rio Tinto (NYSE:RIO), a London based natural resources behemoth. These two stocks have exposure to most hard commodities (e.g. anything mined or extracted from the earth).
  • Glencore International (GLEN), a Switzerland based mining and commodities trading giant that is also the world's biggest commodities trading firm.
  • Vale (NYSE:VALE), a major Brazilian producer of iron ore, basic metals and non-ferrous minerals and fertilizers which has also been hit with an ongoing tax dispute and tax bill of $5.6 billion by the Brazilian tax authorities.

However and if you are considering shorting these commodity stocks, beware of the tendency for stocks to become oversold on any bad or negative news - especially concerning China. After all, China may be slowing in part due to the stalling European economy BUT the Chinese economy is also far from crashing while the US economy appears to be perking up (or at least its already hit bottom some time ago).

Hence, keep an eye on commodity stocks by adding them to your Next Candle "my portfolio" list and periodically check your Next Candle stock prediction as well as keep an eye out for any news about China and China's economy.