China’s Bold Stimulus Package Propels Equities in 2024
Emerging from the shadows of economic stagnation, China made waves on September 23rd with an unprecedented stimulus initiative. The government’s strategic move, which included slashing mortgage rates, breathed life back into China’s real estate market – ailing for years. Bolstered by a blend of despondency, incredibly low equity valuations, and substantial short interest, Chinese stocks soared to unprecedented heights in a monumental rally. Iconic Chinese ADRs like JD.com (JD), Futu Holdings (FUTU), and UP Fintech Holding (TIGR) experienced a surge of over 50% in just a month!
Chinese Stocks Weather Worst Day Since Financial Crisis
After an exhilarating multi-week surge, Chinese stocks finally took a well-deserved pause. The iShares China ETF (FXI), a beacon of large-cap Chinese stocks, had surged from $25 to $37 over a few weeks – climaxing in gains during 11 out of 13 sessions before retracting by approximately 9% in a single day. News sources were quick to note that this one-day setback marked the most severe decline since the heart of the Global Financial Crisis during the Lehman Brothers collapse.
Considering China: Is it Time to Seize the Dip?
Though the recent plunge in Chinese stocks may sting for those who rode the bullish wave, it’s a standard development in light of the colossal short squeeze that unfolded. A 10% retreat in the midst of a bear market differs vastly from such a pullback after a substantial short squeeze. For instance, FXI is regressing about one-third of its upward movement, descending to its short-term 10-day moving average for the first time. This juncture presents an opportune moment for sidelined investors who refrained from chasing after initial strength, potentially prompting their entry into the market at these levels.
Buybacks Spell Opportunity in the Chinese Market
Keep a close eye on Alibaba (BABA), China’s e-commerce powerhouse, acting as a barometer for investors. Similar to Apple (AAPL) in bygone years, BABA’s stock is climbing due to extensive buyback activities. In September alone, the company repurchased its shares almost daily, with a buyback tally exceeding $4 billion in Q3. While BABA momentarily paused buybacks amidst the Chinese equities surge, it’s foreseeable that the company will leverage the downturn to resume buybacks, thereby reducing share availability and lifting prices.
Opportunity Knocks: Chinese Equities Still Undervalued
Despite the recent epic short squeeze in Chinese stocks, valuations persist at historically low levels. For instance, BABA’s price-to-sales ratio hovering around 2x stands at one-fifth of its 2020 value.
Bottom Line:
Amidst the tumultuous plunge in Chinese stocks, fundamental and technical indicators point towards this decline as a potential buying opportunity, rather than a market peak.
7 Best Stocks for the Next 30 Days
Exclusively unveiled: Finance gurus distill 7 top-tier stocks from a current pool of 220 Zacks Rank #1 Strong Buys. These selected tickers are deemed “Most Likely for Early Price Pops.” Since 1988, the comprehensive list has outperformed the market by over 2X, boasting an average annual gain of +23.7%. Act swiftly and pay close attention to these meticulously chosen 7 stocks.
5 Stocks Our Experts Predict Could Double In the Next Year
By submitting your email, you'll also get a free pivot & flow membership. A free daily market overview. You can unsubscribe at any time.
