The Motley Fool

Can BHP Billiton plc & Rio Tinto plc Survive The China Correction?

You may have missed it in all the excitement over Greece, but the Chinese stock market has crashed. The Shanghai Composite index is down 20% from its recent peak on 10 June, including a drop of 7.4% last Friday alone.

The index is still up 30% since January, thanks to a reckless share price rally fuelled by credit and monetary easing at the start of the year, but few investors are buying into the dips.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

They think the correction has further to go, and that should spell bad news for investors in BHP Billiton (LSE: BLT) (NYSE: BBL.US) and Rio Tinto (LSE: RIO) (NYSE: RIO.US).

China Correction Or Crisis?

The China correction has partly been driven by a crackdown on speculation that has seen investors rush to take out loans to buy stock, allied to fears over the slowing economy, falling corporate demand, and overspill from Europe.

China’s central bank may have cut lending rates by 25 basis points on Saturday to 4.85%, but investors need more than that.  The oil price has fallen on expectations of shrinking demand from one of the world’s major consumers, so how have BHP and Rio done?

Metals Sink

Since the Shanghai composite peaked in June, BHP Billiton is down 4.5% and Rio Tinto 3.5%. I would have expected worse, but I think the market had already accepted that the China growth miracle is over, as reflected in price falls of 26% and 13% respectively over the past year.

The iron ore price rally has lost heart, with the price falling to $60 a tonne, although that is still higher than April’s low of $47. Goldman Sachs reckons the price will fall to $50 next year, then slide towards $40. Copper has fallen steadily over the last year, from $3.2 a pound to around $2.6 today, a drop of almost 20%.

Brave New World

The price falls will be intensified by BHP and RIO’s joint strategy of ramping up production to drive out smaller rivals and dominate the market. This will certainly help them to grab share, at the cost of margins.

They are playing a long game and investors can afford to do so as well, with the stocks on fat juicy yields of 5.67% and 4.57% respectively. Trading at 8.12 and 8.42 times earnings, today is certainly a tempting entry point.

With Chinese growth set to slow, and the rest of the troubled world unlikely to pick up the slack, you have to accept the commodity supercycle is over. But then, so are the worst of the share price falls.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.