Chicago, IL – December 3, 2024 – Today, Zacks Investment Ideas feature highlights iShares China Large Cap ETF FXI, Alibaba BABA, JD.com JD, Baidu BIDU and Futu Holdings FUTU.
The Chinese economy and equity market have been in a slump for years, triggered by a real estate crisis, anti-business government policies, a high unemployment rate among youth, and strict lockdowns in the wake of COVID-19. That said, Chinese stocks exploded in September as the government announced a sweeping stimulus package and institutional investors like David Tepper and Michael Burry piled into equities.
For September, the iShares China Large Cap ETF launched 20%. Following the spike, profit takers emerged, and FXI bled lower. After the results of the US presidential election showed Trump as the winner, the downside accelerated
Trump, known for his pro tariff economic stance (especially toward China), was the culprit.
Last week, President-elect Trump announced that he plans to immediately hike tariffs on Chinese goods entering the US by 10%. In a Truth Social post, Trump warned:
“I have had many talks with China about the massive amount of drugs, in particular Fentanyl, being sent into the United States – but to no avail. Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our country, mostly through Mexico, at levels never seen before. Until such a time as they stop, we will be charging China an additional 10% Tarriff, above any additional Tariffs, on all of their many products coming into the United States of America. Thank you for your attention to this matter.”
Despite the heated rhetoric, below are five reasons Chinese stocks are a good bet here, including:
1. US is Negotiating from Position of Strength = Fast Resolution
The US trade deficit with China is overwhelming, approaching nearly $85 billion in September. Because the imbalance is slanted in one direction, China will likely look to negotiate and resolve the trade dispute (which they showed a willingness to do in Trump’s first term. Furthermore, China showed some goodwill late last week by releasing three Americans long held in Chinese prisons. Finally, FXI has been up since the tariffs were announced, signaling that the news is already priced into the market.
2. Stimulus Package
Stocks run on liquidity, and earlier this year, the Chinese government showed that they are looking to provide it through a sweeping stimulus package. Historically, when the Chinese government wants to boost its economy, they go all out and leave no stone unturned. With this in mind, more stimulus is likely on the horizon.
Meanwhile, Chinese regulators recently reversed their anti-crypto stance to legalize Bitcoin ownership. Chinese blockchain operator SOS gained over 100% intraday last week after the company announced it would add $50 million worth of Bitcoin to its balance sheet.
3. Chinese Stocks Are Cheap
Alibaba is an excellent proxy for Chinese stocks. Chinese stocks like BABA and JD.com enjoy historically cheap valuations. Meanwhile, companies like Baidu are poised to cash in on the AI boom.
4. China Technical View
Several leading Chinese stocks, like Futu Holdings,are flushing out bears and are forming bullish double-bottom base structures.
5. Record Outflows = Bearish Retail Sentiment
Bloomberg reported that Chinese ETFs have seen their most significant monthly outflows on record. Such outflows suggest that sentiment (a contrarian indicator) for Chinese equities is near rock bottom levels.
Despite tariff threats from the incoming Trump administration, Chinese equities are stabilizing. Cheap valuations, strong technicals, and low valuations make Chinese stocks a buy into 2025.
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Baidu, Inc. (BIDU) : Free Stock Analysis Report
iShares China Large-Cap ETF (FXI): ETF Research Reports
JD.com, Inc. (JD) : Free Stock Analysis Report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
Futu Holdings Limited Sponsored ADR (FUTU) : Free Stock Analysis Report
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