China has long posed the greatest – and most obvious – risk to financial markets. This is why financial advisors in the U.S. have refused to allocate into any China-related funds. Clients have an aversion right now to investing in China, and the Chinese economy has a history of being unfriendly to shareholders.
Having said that, there’s a price for everything, and at some point, Chinese stocks do become screaming buys. When I look at multiple ETFs and individual stocks, it does seem like we could be in a tradeable bounce here.
I use the word tradeable for a reason. I don’t know if the long-term investment case is there yet for Chinese stocks, and there is still a tremendous amount of uncertainty.
If Donald Trump were to win the presidency, we likely would see increased tariffs and other hardline policies negatively impact China. That, combined, with a lack of clarity from the Chinese government on stimulus measures makes it hard to have too much confidence beyond the short to intermediate term.
Let’s say you agree with me that China is a contrarian trade and that Chinese stocks are deeply oversold. Do you trade China through China itself?
How to Play the China Comeback
You don’t have to. You could instead consider commodities as the play. As the world’s most populous nation and its second-largest economy, China’s industrialization and urbanization drives a substantial portion of global demand for commodities such as iron ore, copper, and crude oil.
China is not only the largest consumer of numerous commodities, but it also plays a pivotal role in the supply side, particularly in metals and minerals where it is a major producer. The country’s economic health is closely monitored by commodity market participants, as Chinese demand can greatly influence global commodity prices and investment flows. Moreover, its policy decisions, such as those related to environmental regulations or infrastructure spending, can have immediate and far-reaching impacts on commodity markets.
Could this perhaps explain some of the recent resurgence in oil prices and industrial commodities like copper? I think it’s very possible.
Either way, I prefer to put my attention toward long laggards for a new cycle, and no part of the world is more contrarian than China, and by extension, commodities.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
