Game Plan With China Relies On Shocks

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Posted: Sep 30, 2019 9:42 AM
Game Plan With China Relies On Shocks

Source: AP Photo/Andrew Harnik

The market remains cautious this morning after the administration offered an official update to reporters that it was contemplating extreme changes in China investing rules for Americans.

Some reports suggested the administration was looking into curbing all American investment in China while de-listing Chinese stocks from US exchanges. 

Many have taken note of the comment “at this time” press release from Assistant Secretary for Public Affairs Monica Crowley.

I’ve spoken to enough members of President Trump’s economic team and know they are using a game plan with China that relies on shocks and complete surprises and a willingness to think outside typical statecraft.

Moreover, the administration believe China respects strong tactics rather than complaining without any actions, which allowed this dilemma to evolve in the first place.

Buy China Stocks?

There is a little bounce in some China names this morning but for those looking for this to be the entry point I’m not sure and wouldn’t force the issue.

The Shanghai Stock Exchange is +16.5% for 2019 but closed at 2,905 way down from 5,166 high June 7, 2015.

That said some of the big names traded in the United States are attractive but I would only view them as trading vehicles for the moment waiting for more info to add or buy new positions for longer term portfolios. 

I don’t see the need to force it, as they have been disasters:

•             Alibaba Group Holding Ltd (BABA): $166 from $208, June 15, 2018

•             Baidu Inc. (BIDU): $101 from $269, March 11, 2018

Big Momentum Names

The big underreported story continues to be the breakdown of big momentum names that carried the stock market for last few years.

It’s sort of ironic considering all the hype on the way higher.  I think these names are oversold but they still look vulnerable near term.