Is It Time to Buy China?

• Is It Time to Buy China?
• ETF Talk: Take a Global View with This ETF
• For the Love of Conversation 
• Confucius Say Be Noble

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Is It Time to Buy China?

As investors, we are always looking for the next big opportunity to profit. And often, ideas that worked in the past but have gone out of favor are a great hunting ground for that next big opportunity. In recent weeks, we’ve seen one segment of the market start to show a nice mover higher after a big downturn in the last two years. That segment of the market is Chinese stocks.

So, now the question becomes, “Is it time to buy China?”

To help answer that question, today’s The Deep Woods features an excerpt from my daily publication, Eagle Eye Opener, which if you aren’t yet a subscriber, why not? This analysis comes to us from my “secret market insider,” a man who provides macro intelligence to some of Wall Street’s biggest firms, and who also has teamed up with me to give my readers a daily market brief with all the key information you need to understand the market that day — and every trading day.

And now, let’s find out if it’s time to buy China, courtesy of my secret source.

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Over the past several years there have been few sectors/regions that have performed as poorly as Chinese stocks, as a series of policy decisions seen as hostile to private business in China combined with the Zero-Covid policy to hammer Chinese shares. The impact of these policies is clearly visible in the five-year performance gap between Chinese shares, represented via iShares China Large-Cap ETF (FXI), and the S&P 500, represented by the SPDR S&P 500 ETF (SPY), which is nearly 80% (-38.53% for FXI vs. 40.68% for SPY).

But over the past several weeks, China has taken a series of steps that address, and possibly reverse, these negative economic and business-related policies. And for the first time in years (perhaps since the start of the Trump administration) one can make the case that the outlook for Chinese growth is turning positive.

First, China has abandoned Zero Covid and the economy is returning to pre-pandemic normal. Zero Covid was a major economic headwind on the Chinese economy for the past several years, but the policy was effectively abandoned on Jan. 8, when China downgraded the severity of the disease and relaxed travel and quarantine rules. Now, in part because of a surge in Covid cases, the Chinese economy is not back to “normal.” Yet for the first time since March 2020, the case can be made it’s on the way.

Second, China appears to be relaxing its crusade against domestic tech companies. The poster child for Chinese authorities’ crackdown on Chinese tech companies was Didi Global, the Chinese ride sharing app. Some 18 months ago, Chinese authorities prevented downloads of Didi’s 25 various apps and forbade the company from taking on new registered users as punishment for Didi seeking a NYSE stock listing. That crackdown then led to Chinese authorities targeting other companies, but in many ways Didi was the one that started it all.

On Sunday, Chinese authorities announced that the Didi Global exile is over, as once again Chinese consumers can download the company’s apps and they are allowed to begin to register new users again, effectively allowing the company to start growing again. Time will tell if this signals a broader easing of the crackdown on Chinese tech firms, but it’s clearly a good start.

Third, the Chinese property market has been a weight around the neck of the Chinese economy for months, even since the collapse of Evergrande in late 2021. Since then, Chinese authorities have been conducting targeted/stealth bailouts or “takeunders” of various struggling Chinese property firms. China recently announced the creation of a $25-billion fund to recapitalize the property market. The fund will come from the PBOC and the China Industrial and Commercial Bank of China (China’s largest bank) and funnel into the economy via selected property managers. But make no mistake, this is a bailout of the property market and the capital should help to repair that market and contribute to better economic growth.

Fourth, and perhaps most importantly, China appears to be willing to try and re-engage the West. Earlier this week at the Davos World Economic Forum, Chinese Treasury Secretary Liu He stated that China was once again open for business and sought policies that would “strengthen international cooperation” and “world peace” and promote a return to globalization. It was later announced that He and Treasury Secretary Yellen would have a meeting today at Davos.

While broad, these moves reflect the most business and economically friendly policy changes in China in many years, and if they are followed through on, then Chinese growth should accelerate and that should translate to substantial gains in Chinese stocks.

Bottom line, while it’s only for the right risk-tolerant investor, for the first time in a long time the risk/reward for Chinese stocks is attractive, as long as these policy changes continue to progress. Chinese authorities appear committed to economic growth, if it’s like they were in the 2000s and early 2010s, then the return potential for Chinese stocks is significant.

From an exposure standpoint, FXI remains the “easiest” way to get exposure to Chinese stocks, while KWEB remains our preference for high-growth Chinese Internet names (although we stress that is a very volatile ETF and is not for the faint of heart).

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As you can see, the analysis in my Eagle Eye Opener is far from the average take on markets you get anywhere else. Moreover, it’s this kind of market analysis that we provide you every day, straight to your inbox, by 8 a.m. ET — but only if you’re a subscriber to the Eagle Eye Opener.

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Confucius Say Be Noble

“The noble-minded are calm and steady. Little people are forever fussing and fretting.”

–Confucius

If you want to be “noble-minded” (and who doesn’t?) then one way to do so is to remain calm and steady in your approach to life. Doing so will help you avoid getting caught up in the pettiness, fussing and fretting that everyday existence tempts us into. So, as Confucius says, be noble.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods