It seemed like everyone was buying China on September 26. China stocks were up 10%. The big move was celebrated on CNBC in an interview with David Tepper which got a lot of attention on social media.
Of course, the best time to get into a trade is before the big move and before it is being discussed on CNBC. Not after.
While almost everyone was ignoring the China trade earlier this year, I was bullish on China on January 22nd in my stock letter. I shared the call in my MarketWatch column on March 4.
Those calls have produced nearly 3x market gains.
* Since the January suggestion in my stock letter, iShares MSCI China ETF (MCHI) is up 52%, almost triple the S&P 500 gains of 18.6%. KraneShares CSI China Internet ETF (KWEB) is up 47%. I suggested both in my letter back then, and I bought them.
* Since the March suggestion to buy China in my MarketWatch column, MCHI and KWEB are up 31% and 35.4%, almost triple 12% S&P 500 gains.
I was also bullish on JD.Com (JD) and Tencent (TCEHY) in that column. They are now 80% and 67%.
Below, I offer details on my China commentary ahead of these moves.
If you missed the China trade what to do now?
1) But first, if you feel envy and regret because you missed the trade, stop. Those are emotions. And emotions, positive or negative, will always get you into trouble in the market.
2) Be patient and wait for the next opportunity. In the markets there is always another train leaving the stations. I will do my best to continue to identify them for subscribers and readers, as I have in the past. Follow my work in my stock letter and my MarketWatch column for the results. Currently I am bullish on energy, for example.
3) Regarding China, I am still bullish. Consider adding a little here. But then be patient and wait weakness. Big moves like this normally retrace to some degree as the crowd fervor cools off.
For example, I suggested Summit Therapeutics (SMMT) in my stock letter at $3.88 on April 7, 2024. By September 13 SMMT was up 723% to trade at $31.93, on the positive news flow I predicted. However, that was a bad time to buy. The stock has since fallen to $22. Like China yesterday, Summit was being celebrated on CNBC at the high. Starting to notice a trend here?
China will likewise put in a partial retrace of sorts. That will be the time to add more to your China trade, which is not over yet. For insights on what to do now with SMMT, if you are interested, consider subscribing to my letter.
Why buy China Now
Besides the huge government stimulus that I predicted (see below), here are four reasons to be bullish on China, which almost no one is talking about.
1) A big fear is the real estate market. But note that individual property owners are not overleveraged the way they were in the U.S. during the GFC, though property developers have a lot of leverage.
2) While China is losing to onshoring back to the U.S., China is picking up the slack elsewhere. China’s trade surplus has been increasing because China is growing exports to the rest of the emerging world.
China’s exports to ASEAN countries now surpasses China’s exports to the U.S. The trend should last because China sells them high value-added things they want and need. There has been a surge in China’s exports to Russia, a trend accelerated by the Ukraine conflict. These shifting trade trends are part of a developing new global economic order, which President Xi Jinping describes as “multipolar world.” I’ll bet you did not know that China’s trade surplus has almost tripled in the past three years.
3) China is directing capital to key growth sectors. China is directing capital to key sectors such as electric vehicles and their supporting supply chain (batteries, natural resource extraction).
4) China now has a dominant share in global EV sales. Given all the negative press on EVs these days, EVs are also a good contrarian play. In this sense, China is a double contrarian trade. Tesla (TSLA) is too, by the way. I liked TSLA better back at $173 to $183 and I was adding at the time. But it still looks like a buy for a medium-term hold.
For background, here’s a summary of my China suggestions earlier this year.
From my January 22, 2024 stock letter Brush Up on Stocks:
“China gets so much negative press these days, it is shaping up to be a nice contrarian play. All is not terrible in China. While the financial media are focused on negative China trends like weak prices, weakening growth, and property market trouble, there are actually several positive trends in the Chinese economy…The extreme negativity towards China has more than priced in the negative trends… While I own some individual names like Alibaba (BABA), really the simplest way to build exposure is through exchange traded funds like KraneShares CSI China Internet (KWEB) and iShares MSCI China (MCHI). I am buying these two.”
From my March 4 MarketWatch column:
“If you’re reluctant to buy, given all the negative headlines about China, counterintuitively that’s part of the reason to buy. Sentiment towards Chinese stocks is so negative, it’s a decent contrarian indicator telling us this is the time to get exposure. The FTSE China A50 Index and China’s CSI 300 Index are trading at discounted valuations not seen in years…”
“China may unleash fiscal stimulus: A loose monetary policy hasn’t helped enough since loan demand remains low. This is why we could see fiscal stimulus…”
For other reasons to be bullish on China, check out my March 4 column here.
I was also bullish on Alibaba Group (BABA) in a MarketWatch column on August 21. It is now up 29% compared to 2.4% for the S&P 500. A Chinese retailer which looks attractive is PDD Holdings (PDD).
Check out my August 21 column in Chinese retailers here.
For more calls like these, consider subscribing to my stock letter here. There’s a price point for everyone.
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