Those of us who are just passive investors in the stock market, usually via our pension plans, have no doubt been horrified by the meltdown in stock prices and what feels like the daily destruction of our savings.
But fear not, as for any of us in there for the long haul, it will no doubt come back gradually over time, however scary it feels in the meantime.
As a diversion from fears around penury in old age, a welcome distraction is to compare the meltdown in share prices caused by the coronavirus to the comparatively modest impact on commodity prices.
We should point out in any such discussion that while the virus has been blamed in some quarters as the reason why the oil price collapsed, it actually had little to do with that. The oil price collapsed because of a supply-side tsunami unleashed by Saudi Arabia, not by a fear of a demand-side collapse due to the coronavirus.
Compared to falls in share prices in excess of 20% — sufficient to qualify as bear territory — metals within the wider commodity sector have at most fallen some 10% so far and some, such as iron ore and copper, are showing considerable resilience, staying within single digits.
Even at the height of China’s lockdown, metal prices drifted lower but have hardly fallen out of bed considering China is either consumer of or/and producer — sometimes both — of half the world’s production of all the base metals.
For example, China is responsible for some 70% of the world’s seaborne iron ore trade and half the world’s copper consumption. Last year, China produced 56% of the world’s steel. With rapid refinery expansion in recent years, China now produces a majority of copper, zinc, aluminum and many lesser base metals.
One argument for the disconnect between shares and metals is shares had been on a 10-year bull run prior to last week, whereas metals have seen falls in recent years and been in a largely sideways market for much of last year.
Intriguingly, though, the return to work in China is happening more slowly than previously hoped (and hyped by Beijing). Many producers, consumers, retailers and construction firms are operating at 50% or less. Beijing is finding it as hard to return to work as dramatic a move it was to stop work; rather than any kind of V-shaped recovery, a slow and gradual return will be hampered by the rest of the world following a month or two behind into lockdown.
Metals’ relative resilience may yet be tested in coming months before a wider and more coordinated recovery in commodity prices builds any momentum in the latter part of the year. We are not seeing V-shaped recoveries here, but next year will likely be different as infrastructure projects gain momentum and fear subsides. We should see optimism return and, with it, a run-up in prices.
Let’s hope for the sake of my pension plan share prices do the same.