Strap in for a whirlwind of earnings reports, Fed decisions, job data, and geopolitical tensions. It’s enough to make even the most seasoned trader queasy. And amidst this chaos, Evercore ISI throws a curveball: buy China.
Yes, China. The same China whose stocks have been tumbling like acrobats with buttered feet. But wait, before you scoff, hear Evercore’s reasoning.
A Market Bruised, but Not Broken?
Remember the Hang Seng’s nosedive? The Shanghai Composite’s dizzying descent? Those were scary dives, but lately, there have been flickers of hope. Beijing stepped in, whispering good tidings to the market, and the People’s Bank offered a liquidity boost. Could this be the turning point?
Evercore’s strategists, led by Julian Emanuel, believe so. They see these interventions as a signal of more supportive policies to come, especially after the National People’s Congress in March. And where there’s policy support, there might be opportunity.
Playing China’s Revival: Two Routes
Evercore suggests two ways to tap into this potential Chinese resurgence:
1. Piggybacking on US Exposure:
Look for US companies heavily reliant on China. Estee Lauder, TE Connectivity, and even Apple fall into this category. Evercore likes them, and they already have an “outperform” rating.
2. Riding the Hong Kong Wave:
Hong Kong stocks, or H shares, are particularly intriguing to Evercore. They point to the iShares China Large-Cap ETF (FXI) as a way to capture this market. Why? Because mainland China stocks are currently trading at a significant discount to their Hong Kong counterparts. This has happened before, and in October 2022, it led to a rapid rally in the Hang Seng.
Bear Trap or Golden Opportunity?
The sentiment towards China is undeniably bearish. But sometimes, when everyone’s looking down, opportunity hides in plain sight. That’s where the “bear trap” analogy comes in. A sharp reversal in sentiment could trigger a rapid upswing, especially considering the high number of short positions on the FXI.
Beyond Sentiment: The Valuation Argument
But Evercore doesn’t rely solely on technicals. They point to the Hang Seng’s dirt-cheap valuation, trading at a record discount to the S&P 500. Even a partial correction could mean significant gains for the Chinese market.
For the Daring: Options and ADRs
For investors with a strong stomach and access to certain trades, Evercore suggests specific options plays on the FXI and a list of US-listed Chinese ADRs that meet specific criteria, including valuation discounts and growth potential.
The Final Word: Proceed with Caution
China’s potential turnaround is not without risks. Geopolitical tensions and regulatory uncertainties remain. But for those willing to brave the volatility, Evercore’s “buy China” call could be a bold, contrarian play in a tumultuous market. Just remember, buckle up isn’t the word. Strap in, hold on tight, and be prepared for a wild ride.