A short time ago, many Wall Street pundits were convinced that China’s massive economy would finally take the throne from the United States. However, three factors have taken the U.S. and China’s economies in opposite directions: housing, debt, and a slow post-COVID economic recovery. China’s economic worries started with an overbuilt real-estate market that went from boom to bust. When the country’s real estate bubble finally collapsed, China’s top developer, Evergrande, collapsed under a mountain of debt. Meanwhile, as China’s economy has slowed, its debt-to-GDP ratio soared to nearly 300% in 2023. Finally, China suffered one of the slowest post-pandemic recoveries due to its extended lockdown policy, which was among the most stringent worldwide.
Should Investors Buy Chinese Stocks?
China’s stock market has mimicked its floundering economy and has drastically underperformed global markets. However, five signs suggest that the worst is over for Chinese equities, including:
Burry and Tepper are Bullish on BABA
David Tepper and Michael Burry are two of the sharpest minds on Wall Street. Tepper is famous for making a fortune by buying beaten-down bank stocks like Bank of America (BAC) at the end of the 2008 global financial crisis. Burry, who was portrayed by Christian Bale in the hit movie, “The Big Short,” recognized and shorted housing stocks before the bubble popped. What do these two legends have in common in 2024?
The latest 13F, a quarterly report filed by institutional investment managers and required by the Securities and Exchange Commission (SEC), shows that they are both betting big on China’s largest e-commerce company, Alibaba Group (BABA). BABA makes up the largest position in each portfolio and Tepper owns a juicy $756 million position. From 13F data, it’s clear to deduce that the smart money is betting on China.
FXI Regains Key Technical Level
The iShares China Large-Cap ETF (FXI) is quietly up about 15% year-to-date after successfully retesting its late 2022 lows. Since then, FXI has regained its 200-day moving average and is carving out a bullish ABC pattern (a W-shaped pattern where the second dip undercuts the first).
Image Source: TradingView
Chinese Stocks Have Low Expectations
Savvy investors understand that earnings analysis in a vacuum is futile. Instead, investors should focus on how earnings are doing in relation to estimates. Because Chinese stocks have been beaten down for so long, the earnings bar is low. BABA’s e-commerce cousin JD.Com (JD), is a wonderful example of this trend. The company has beaten Zacks Consensus Estimates for four straight quarters with an impressive 24.04% average surprise.
Image Source: Zacks Investment Research
Tesla’s China Deliveries Spike
Car insurance numbers from China suggest that Tesla (TSLA) just saw its second-highest week of deliveries in China this year. Bullish Tesla deliveries is a stealth signal that China’s consumer is on the mend.
PBOC’s Dovish Action
The People’s Bank of China (PBOC) realizes the Chinese economy is in trouble and is taking steps to support it, such as decreasing down payments for first-and second-time home buyers and removing restrictions in the real estate sector.
Conclusion
Early signs of an economic and stock market recovery are emerging in China. Beyond what was mentioned above, large call option buyers have been piling into Chinese proxies such as the Krane CSI Internet ETF (KWEB). Chinese internet giant Baidu (BIDU) will report earnings on Thursday, which will be the next big clue for investors. Overall, the data suggests that the worst is over for China. With smart money betting on Chinese stocks, investors should look to be bullish Chinese stocks over the next six-12 months.
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See Stocks Now >>Bank of America Corporation (BAC) : Free Stock Analysis Report
Baidu, Inc. (BIDU) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : 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
KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
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