Our China minds align to see copper higher .:Macquarie Research

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Our China minds align to see copper
higher
Quick Takes
 China is buying copper now, and as a result Bonnie Liu is removing her
short-term trading sell from copper. She is now more comfortable about the
copper price moving up from current levels, and highlights the upside risk
given her copper price forecasts for the rest of the year are more than 25%
above current sport prices. >> Read Report
 The key factors driving Bonnie’s more bullish view on copper are a gradual
pick-up of Chinese copper fabricators’ utilisation rates, solid order books over
the year to date and the end of consumer destocking.
 The prospect of sharp declines in copper stocks in global warehouses in the
second half, and a pickup of Chinese copper imports from mid-2011 are set to
be the catalysts for the next move higher.
 Paul Cavey continues to believe China is ahead of the curve on inflation, with
policy tightening over recent months expected to result in softer macro data
over the second quarter.
 This should result in the current tightening phase reversing course in the
second half as growth slows.
 Because of the tightening that has already occurred, Paul is more concerned
about downside risks to growth than upside risks to inflation.
 By the way, in this week’s China Diviner Paul reminds us that the purpose of
the recent increase in the Reserve Requirement Ratio (RRR) was to soak up
liquidity caused by currency inflows. The increase should not be seen as
further tightening. >> Read Report
 Turning to the outlook for the US, our global economics team believes the
recovery should continue to gain momentum, driven by exports and business
investment. Exports should also be encouraged by the weaker US dollar.
Highlight Reel
 Daniel McCormack sees European companies with exposure to Asia, such
as BMW, Adidas, HSBC, Prudential and Xstrata, as one of the best long-term
investment ideas in the market.
 A two-day tour of the tier 2/3 cities of Nanjing, Yangzhou and Wuxi reinforced
Linda Huang’s positive view on China department stores.
 After a successful copper hunt, Polina Diyachkina emphasises her
Outperform on Sumitomo Metal, an Asia Marquee Buy Idea.
 Amit Kumar likes Travellers at current levels as it has an established
franchise and has consistently outperformed the industry and peers.