#3: China Base Metals Supercycle? You’ve Already Paid for One
 Roll out of metals sector — If you believe in the recent rally in base metals,
note that history suggests that it is time to switch from metal names to the
market indices.
 Wait your turn or is this Supercycle 2.0 driven by China alone? — The rally
should be ending, based on 03/04 and 05/06 experiences. To believe metal
stocks will continue to outperform, one needs to believe in a new super-cycle.
Global cycles were synchronized last time, now only China is the driving force.
 Rallies peak at 25 weeks, on average, 31 for supercycles; we are in week 26.5
— The current run has lasted 26 weeks for Chalco and 27 weeks for Jiangxi
Copper. The outperformance periods on average lasted 31 weeks (from trough
to peak) for the 3 periods we examined, or 25 weeks excluding the ‘super’
period in 06/07.
 Jiangxi Copper looks over-stretched vs. Chalco — Contrary to our fundamental
analysis, Jiangxi has run harder than Chalco compared with previous cycles.
Moreover, 2 of 3 previous cycles suggest that Chalco can continue to run up in
the short-term. Based on this analysis, one would have a relative preference for
Chalco.
 Four weeks after a peak, stocks fall in absolute terms 23% — Jiangxi has a
history of stronger pullbacks, falling 31% on average with consistency over the
past 3 cycles. Chalco’s average pullback is –16%, ranging from –34% to –6%.
 Top Buys — Posco and United Tractors.
 Top Sells — Tata Steel, Sterlite Industries and CNBM.