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Chinese Equities: 5 Data Points Suggest Long-Term Bull is in its Infancy
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China has been one of the worst global markets to invest in over the past decade. In fact, the iShares China Large-Cap ETF ((FXI - Free Report) ), the best U.S. traded proxy for Chinese large-cap stocks, went on a climactic bull market run in the early 2000s before topping above $73. After a brutal bear market that slightly preceded the Global Financial Crisis of 2008, FXI plunged from a nosebleed territory of $73 in October 2007 to ~$19 by October 2008. For the past 16 years, the Chinese market and FXI have largely been rangebound, meeting sellers just over $50 (three bull markets ended here) and often finding support at ~$30.
Image Source: TradingView
Though nimble traders could have done well trading the ranges, most investors rely on sustained trends (in either direction) to generate returns. So, what’s different this time, if anything? Five straightforward and convincing data points suggest “this time is different,” including:
Long-Term Price Rotations
Amateurs often conflate technical analysis with being solely short-term oriented. However, I have found throughout my investing career that the best technical signals are derived from long-term price rotations. Furthermore, more than anything else, price removes bias and represents what is actually happening in the market.
Investors cannot consider Chinese equities without considering the Chinese e-commerce juggernaut Alibaba ((BABA - Free Report) ). After a brutal bear market, BABA’s quarterly chart shows a rotation over last quarter’s high coupled with a retest of its 2015 IPO breakout – a zone that offers investors attractive reward-to-risk.
Image Source: Zacks Investment Research
Strong Zacks Rank & Bullish EPS Surprise History
JD.com ((JD - Free Report) ), another Chinese e-commerce juggernaut, sports a best possible Zacks Rank of #1 (Strong Buy). In addition, the company has topped Zacks Consensus Estimates for several quarters, with an average positive surprise of 9.68%, evidence that the earnings picture is turning the corner.
Image Source: Zacks Investment Research
Taiwan Concerns Overblown: China Likely Won’t Invade Taiwan
Though U.S. China relations have been ice cold (to say the least), Chinese President Xi recently rebuffed any ideas that China would invade Taiwan in a recent meeting with U.S. President Joe Biden.
Participation is Broad, Accumulation is Heavy
The Krane CSI China Internet ETF ((KWEB - Free Report) ) is a U.S.-traded ETF that mirrors a basket of Chinese internet stocks. Thursday, KWEB soared nearly 8% as volume swelled to its highest levels since February. Such firm price and volume action is a classic sign of institutional accumulation.
Image Source: TradingView
Return of International Investors
Despite the Chinese economy’s poor performance and tarnished reputation, global investors are warming up to its equities. Global investors have scooped up Chinese stocks for a third straight month. Savvy investors understand that following the money far superseded following the latest narratives.
Bottom Line
Chinese stocks have endured a debilitating bear market over the past 15 years. However, several bullish data points suggest that Chinese equities offer investors a juicy reward-to-risk proposition at these levels.
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Chinese Equities: 5 Data Points Suggest Long-Term Bull is in its Infancy
China has been one of the worst global markets to invest in over the past decade. In fact, the iShares China Large-Cap ETF ((FXI - Free Report) ), the best U.S. traded proxy for Chinese large-cap stocks, went on a climactic bull market run in the early 2000s before topping above $73. After a brutal bear market that slightly preceded the Global Financial Crisis of 2008, FXI plunged from a nosebleed territory of $73 in October 2007 to ~$19 by October 2008. For the past 16 years, the Chinese market and FXI have largely been rangebound, meeting sellers just over $50 (three bull markets ended here) and often finding support at ~$30.
Image Source: TradingView
Though nimble traders could have done well trading the ranges, most investors rely on sustained trends (in either direction) to generate returns. So, what’s different this time, if anything? Five straightforward and convincing data points suggest “this time is different,” including:
Long-Term Price Rotations
Amateurs often conflate technical analysis with being solely short-term oriented. However, I have found throughout my investing career that the best technical signals are derived from long-term price rotations. Furthermore, more than anything else, price removes bias and represents what is actually happening in the market.
Investors cannot consider Chinese equities without considering the Chinese e-commerce juggernaut Alibaba ((BABA - Free Report) ). After a brutal bear market, BABA’s quarterly chart shows a rotation over last quarter’s high coupled with a retest of its 2015 IPO breakout – a zone that offers investors attractive reward-to-risk.
Image Source: Zacks Investment Research
Strong Zacks Rank & Bullish EPS Surprise History
JD.com ((JD - Free Report) ), another Chinese e-commerce juggernaut, sports a best possible Zacks Rank of #1 (Strong Buy). In addition, the company has topped Zacks Consensus Estimates for several quarters, with an average positive surprise of 9.68%, evidence that the earnings picture is turning the corner.
Image Source: Zacks Investment Research
Taiwan Concerns Overblown: China Likely Won’t Invade Taiwan
Though U.S. China relations have been ice cold (to say the least), Chinese President Xi recently rebuffed any ideas that China would invade Taiwan in a recent meeting with U.S. President Joe Biden.
Participation is Broad, Accumulation is Heavy
The Krane CSI China Internet ETF ((KWEB - Free Report) ) is a U.S.-traded ETF that mirrors a basket of Chinese internet stocks. Thursday, KWEB soared nearly 8% as volume swelled to its highest levels since February. Such firm price and volume action is a classic sign of institutional accumulation.
Image Source: TradingView
Return of International Investors
Despite the Chinese economy’s poor performance and tarnished reputation, global investors are warming up to its equities. Global investors have scooped up Chinese stocks for a third straight month. Savvy investors understand that following the money far superseded following the latest narratives.
Bottom Line
Chinese stocks have endured a debilitating bear market over the past 15 years. However, several bullish data points suggest that Chinese equities offer investors a juicy reward-to-risk proposition at these levels.