Down 19% since June, what’s next for Rio Tinto’s share price?

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The Rio Tinto Limited (ASX: RIO) The stock price has plunged in recent months, losing nearly 19% since June 1.

Shares of Rio started in June at $114.91 each and are currently trading at $93.24 a share.

Meanwhile, the S&P/ASX 200 Materials Index (ASX:XMJ) also took a hit over the same period, losing around 13%.

But there are a few insights and new developments to consider that could put this performance in a new light. We’ll take a look.

What’s happening in China?

There is a glimmer of optimism that the woes of China’s housing crisis may begin to ease, as my colleague Fool Monica has reported.

China has been reported to be stepping up support for its housing industry and easing some restrictions in its ongoing zero-COVID policies.

In a research note released on Friday, ANZ’s Australian economics chief David Plank said the easing of curfews in the city of Chengdu had improved the outlook for iron ore demand.

On the same day, Morgan Stanley also refined its outlook for aluminum. The broker raised its forecast for the price of aluminum by 17% to US$2,525 per tonne.

This followed speculation of widespread cuts in aluminum production in China due to the country’s soaring energy costs.

The importance of the Chinese market?

However, one analyst says Australia’s – and Rio Tinto’s – reliance on China may be an artefact of our prejudices and memories rather than a fact.

Fisher Investments founder Ken Fisher notes that Australian exports to China were down 11.3% year-on-year, despite net Australian export growth of 30.3%.

He attributes this largely to the growth of Australian exports to developed and emerging economies such as South Korea and India, as reported The Australian.

Fisher also provided a deeper analysis of Australia’s perceived overreliance on China.

What did Fisher say?

Fisher noted that China’s explosive growth over the past few decades may have reached a point of diminishing returns, with towns and cities now more interconnected than at any time before.

He argued that the establishment of the interim infrastructure has enabled the Chinese economy to prosper by unifying the channels of its industry. However, now that this phase of meteoric growth is over, he expects it to decline to the levels seen by more developed economies.

China’s gross domestic product (GDP) is expected to grow 3.9% in 2022, a far cry from its peak of 14.2% in 2007.

Fisher noted fears of an ongoing slowdown in China may be overblown, saying “Australia is not a one-trick export pony dependent on the Chinese commodities frenzy.”

He said part of the reason people assume China is central to the health of Australia’s economy and exporters is that during the global financial crisis China was still growing rapidly and its demand for raw materials is what kept Australia’s head above water while other economies floundered.

But, Fisher said, times have changed and there is a long-term correlation between China’s falling GDP and the S&P/ASX 200 Index (ASX: XJO) up:

History shows that slowing Chinese growth in itself does not doom the ASX. After China’s GDP growth peaked at 14.2% in 2007, it slowed in 10 of the following 12 years before the Covid-19 bias that followed. The ASX 200 has risen in nine of those 12 years, climbing 150.5%, outperforming global stocks by 132.8%.

Driving the point home, Fisher concluded:

Inflated China fears have dogged Australian stocks for years. But remember: false fears are bullish, always and everywhere. Just like feeling depressed. Don’t let today’s gloomy headlines scare you away from the recovery to come.

Rio Tinto share price overview

Rio Tinto’s share price is down 6.9% year-to-date and 5.7% over the past 12 months.

This compares to the ASX 200’s nearly 10% decline in 2022 so far and the 9% loss in the past year.

Rio’s current market capitalization is approximately $34.6 billion.

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