Last week, the U.S. news buried a massive geopolitical development...
The story broke Wednesday night. But on Thursday, it was absent from the front pages of just about every major news outlet.
In case you missed it – and no one could blame you – here's the headline...
President-elect Donald Trump has invited Chinese President Xi Jinping to his inauguration.
This development is a shocker for two reasons.
First, no foreign leader has ever attended a U.S. inauguration. It's simply not their office. Historically, that has been a job for ambassadors and diplomats instead.
What's more, this news flies in the face of consensus in the West. Folks expect a second Trump term to be toxic to China's economy. It's a huge reason why investors aren't willing to go long on China right now...
But the economic setup here is more complicated than folks think. And that means Chinese stocks are in a strong contrarian setup today. Let me explain...
China bears expect the economy to crash under Trump's new trade war. But that's unlikely for a couple of reasons.
First, Washington and Beijing are seeking common ground. We can see it through efforts like "panda diplomacy" and Trump's inaugural invitation. The superpowers don't appear to want a full-blown trade war.
Second, even if tensions escalate, China may simply weather the storm. That has already happened once...
We can see it by looking at China's total exports compared with its exports to the U.S. alone.
See, America has already reduced its imports from China in recent years. But as the U.S. shunned China, other countries stepped in to fill the gap. Take a look...
As exports to the U.S. fell, Chinese trade grew elsewhere. So if Trump does call for more tariffs, they may not bite China as hard as folks expect.
What's more, Beijing is acting to shore up the Chinese market...
In September, the People's Bank of China announced a slate of measures to help the national economy. I detailed this stimulus in an October issue of DailyWealth...
Some of the policy decisions included...
- A decrease in the reserve requirement ratio for Chinese banks. This means lenders will be allowed to keep less cash on hand – which means they can invest more in the economy.
- A roughly 0.5 percentage-point reduction of existing mortgage rates. This would put about 150 billion yuan ($21.4 billion) back into the Chinese consumer's pocket.
- A 500 billion yuan ($71.3 billion) fund for brokerage houses, mutual funds, and insurance companies to buy Chinese stocks on the open markets.
- A 15% reduction in the minimum down payment required from new homebuyers.
Last week, China released its economic agenda at the annual Central Economic Work Conference. Chinese media outlet CCTV summarized the main points...
more proactive and impactful macro policies... Expand domestic demand... Stabilize the real estate market... Promote the healthy development of the platform economy.
The recovery isn't over yet. But China stocks are already up double digits since Beijing's stimulus was first announced.
In short, investors and the media expect a second Trump term to be disastrous for the Chinese market... But stealth tailwinds are already lifting it higher.
That makes China worth your attention right now.
Today, the chorus of China bears is loud. But contrarians know that the best opportunities often lie where others fear to tread.
Now is the time to go long on China stocks. I suggest you act before the stealth rally becomes front-page news.
Good investing,
Sean Michael Cummings
Further Reading
"China has vowed to do whatever it takes to right the economic ship," Brett Eversole writes. Even though the country is facing a slowdown, the change in its economic policy is promising. And for us, so are the actions of this legendary investor... Read more here.
"You could miss out on some big profits if you get too caught up in the political drama," Marc Chaikin writes. We're seeing signs of a broadening rally in the U.S. And the trend in one sector points to major gains ahead... Learn more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Jefferies Financial (JEF)... investment banker
Twilio (TWLO)... cloud services
Arista Networks (ANET)... cloud technology
F5 (FFIV)... cloud technology
Broadcom (AVGO)... semiconductors
Astera Labs (ALAB)... semiconductors
Marvell Technology (MRVL)... semiconductors
Ciena (CIEN)... telecom equipment
Lumentum (LITE)... telecom equipment
Fox (FOX)... mass media
Madison Square Garden Sports (MSGS)... pro sports teams
Cal-Maine Foods (CALM)... eggs
Primo Brands (PRMB)... bottled water
Williams-Sonoma (WSM)... cookware and decor
O'Reilly Automotive (ORLY)... auto parts
Urban Outfitters (URBN)... apparel
NEW LOWS OF NOTE LAST WEEK
Biogen (BIIB)... biotechnology
Regeneron Pharmaceuticals (REGN)... biotechnology
Guess (GES)... apparel
ConocoPhillips (COP)... oil and gas
LyondellBasell Industries (LYB)... chemicals
