Chinese stocks are on fire, and this sector is poised to benefit

The Chinese stock market just had its best single day in more than a decade. The mainland CSI 300 index surged 8.5% on Monday , its biggest one-day gain since September 2008. That pushed the benchmark to its highest level since August 2023. It’s also the last trading day of the week in China due to the Golden Week holiday. U.S.-traded ETFs linked to China popped following the overnight action. The iShares China Large-Cap ETF (FXI) traded 2.5% higher. The iShares MSCI China ETF (MCHI) gained 3.4%. Those moves came after China unveiled a slated of stimulus measures to curb the country’s economic slump. On Sunday, China’s central bank said it would tell banks to cut mortgage rates on existing home loans by the end of October. Against this backdrop, Roth MKM’s JC O’Hara highlighted one S & P 500 sector that might benefit the most from a rebound in China’s economy: materials. The firm’s chief market technician pointed out that raw materials companies including metals and miners and chemical producers hit a record last week, soaring 3.4%. “Materials has the highest correlation among the U.S. sectors to China,” he said. O’Hara also pointed to strength in industrial metals such as copper and zinc as a sign that these gains can continue, at least in the short term. Copper futures climbed 5.9% last week, their biggest weekly gain in almost three months. Zinc jumped 3.8%. Some materials stocks highlighted by O’Hara as potential winners, at least based on their price charts alone, are O-I Glass , Corteva and Freeport-McMoRan . To be sure, investors should tread carefully in materials, O’Hara said. “We like the absolute price movement but are still not impressed with the longer-term downtrend from the relative line,” he said, referring to the sector’s relative performance compared to the broader market. Elsewhere on Wall Street this morning, Seaport upgraded Disney to buy from neutral. “While we have tangibly soft Parks data, it is likely temporary, and emergent [direct to consumer] profitability is getting the benefit of the doubt, with recent price increases and paid sharing announcements possibly supporting further [average revenue per user] and sub growth,” the firm said.