BHP Billiton shares bounce on faith in China 8217 s fortunes

BHP Billiton’s earnings are just as sombre as its rivals’, but in contrast, shares of the Anglo-Australian group jumped –as much as 7% at the open–why?

Well, for one thing, unlike its FTSE 100 peer Glencore, whose stock collapsed by 8% after its interims on Thursday, BHP gave a crystal clear commitment dividend to pay-outs for the medium-to-long term.

“Our commitment to our progressive dividend is resolute,” CEO Andrew Mackenzie told reporters on Tuesday morning.

“It has withstood many previous cycles and is a key differentiator relative to our peers,” he added.

Canny Mackenzie

More cannily, Mackenzie, speaking during a conference call earlier from Melbourne, added that BHP’s view remained predicated on China’s economy growing 7% this year.

He told reporters that despite the volatility rocking its markets, that the government was managing the transition of the economy well.

“We think the second half will be a bit stronger than the first half of the year”.

It’s likely there were a few raised eyebrows on the other end of the call in London: scepticism about China’s economy, and more sensitively, its economic data is widespread.

However, what’s important for investors is not whether or not China’s official economic assessments can be corroborated.

Rather, Mackenzie was signalling that he did not expect BHP’s operating earnings going forward to be corroded as severely as they were in 2015.

Fortunate timing

A day after China’s stock market crashed its hardest and fastest for eight years, taking global equities with it, BHP’s assurances are likely to sound like music to its investors’ ears.

Regardless of the deep hole gouged out of BHP’s profits (-86%) by depleted China metal demand, a 25% dump by BHP stock over the last three months may have reached a floor.

There’s no guarantee of that of course.

But there were promising signs in the first couple hours of Tuesday trading.

Prices galloped past Monday’s lows, avoiding ‘engulfment’ by the ominous-looking candle of the day before, and testing the first important interval in extension.

‘Oversold’ but recovering momentum (Stochastic sub chart) was another ‘tick’.

These indications were not necessarily negated by the FTSE 100 also trading higher after five-straight losing sessions—but perhaps qualified with a note of caution for the near term.

Please click image to enlarge