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Chinese Stocks: "Simple Contrarian Observation"

An EWI global analyst called U.S. tariffs imposed on China a "buy signal" -- here's what followed

by Bob Stokes
Updated: July 23, 2019

Some investors might have perceived the huge tariffs that the U.S. imposed on Chinese imports as a signal to stay away from Chinese stocks.

As a major news website said about a year ago (CNN, June 26, 2018):

The gloom is deepening for Chinese stocks.

Two days later, The New York Times had this headline (June 28, 2018):

Trump's Trade Threats Hit China's Stock Market and Currency

But, the so-called "bad news" has not been bad at all for Chinese stocks.

And, our October 2018 Global Market Perspective predicted as much. Here's a chart (wave labels available to subscribers) and commentary:

BuyonTariffs

Because bad news often erupts after stocks have declined for some time, often near lows, outbreaks of bad news can sometimes serve as buy signals. The United States' imposition of tariffs on $250 billion worth of imports from China over the past few months may have provided just such a signal. The bullish price action now in the face of an accelerating trade war adds to the evidence for an upturn provided by the [wave structure] in the Shanghai Composite and the bullish divergence in the Shanghai Financials Index.

Fast forward to a chart and commentary from our July 2019 Global Market Perspective:

tarrifs

[The] simple contrarian observation -- that bad news can sometimes serve as a long-term buy signal -- has so far proved to be correct. Mainland shares now trade not only higher than when the U.S. tariffs were imposed in 2018, [but] also higher than when increased tariff rates were imposed on May 10, 2019.

Our global analyst goes on to tell subscribers what is anticipated next for the Shanghai Composite. If the trend unfolds as expected, it's a move you don't want to miss.

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