RoboStreet – October 10, 2019
Tale of Two Trade Deals on the Table
China showed up in Washington D.C. yesterday with its largest contingent of trade delegates and high-level officials seen in the past two years. Whether there is strength in numbers to get a formal deal with the U.S. to delay the next round of tariffs and layout a framework for further talks is in the balance. The market is betting for the past two days that both countries want to make some meaningful progress that serves each’s national interests.
There are clearly pressures from both sides to stand tall when the whole world is watching while global growth is waning with a lot of finger-pointing to the trade dispute as the culprit. Some see President Trump as wounded because of the impeachment inquiry that China would use as leverage. Others see President Xi as vulnerable to a further erosion of their currency and exclusion to U.S. capital markets and listing exchanges threatened by the White House earlier this week.
One thing that the market is fairly clear on is that the risk of mutually assured economic damage is high if both sides come away empty-handed from the talks. While the U.S. is more immune to the economic demise of China, the rest of the global economy is highly tethered to the country’s well-being, and ultimately that shows up in domestic data at some point. This data caught the market fully off guard, stocks sold off, bond prices soared and the Fed came out with dovish commentary that to stabilize the market.
The weak U.S. PMI data showing contracting growth at domestic factories makes up only 12% of total GDP, but it doesn’t mean that it won’t spread to the much bigger and broader services sector if consumer and business sentiment becomes more cautious, again pointing to the trade war as reason to reign in investment and spending. So, it stands to reason that both the U.S. and China need to lower the tape bombs that are fueling the market volatility and come to terms with even a partial-trade deal.
Assuming there is a willingness to find some common ground on some issues and agree to disagree on other issues, there may well be an opportunity for investors to cash in on a relief rally in large-cap Chinese stocks that trade with the most integrity and acceptable listing standards. These companies are components within the iShares China Large-Cap ETF (FXI) that trades at $40.50 and roughly 9% off its April high of $46. The U.S. market will rally as well, but the better risk/reward is in the FXI.
The iShares China Large-Cap ETF seeks to track the investment results of an index composed of large-capitalization Chinese equities that trade on the Hong Kong Stock Exchange. The fund is made up of 50 holdings, has net assets of about $4.3 billion, has 106.65 million shares outstanding and has a daily trading volume of around 28 million shares. The portfolio of companies trades with a blended P/E Ratio of 10.19x and pays a current dividend yield of 2.10%. The top 10 holdings account for 57.3% of the total portfolio holdings. So, it’s top-heavy with media giant Tencent Holdings in the #1 spot.
As to how shares of FXI stack up to my Tradespoon AI tools, the Seasonal Chart is forecast no less than four “higher” probability readings for the next 20,30,40 and 50-day periods. Now, that doesn’t mean that FXI stock won’t get sold down hard if the trade talks fail, but that’s where my subscribers to RoboInvestor will have an edge – when I issue a proprietary buy alert to get long FXI at just the right time.
I personally wouldn’t go near-global ETFs where geopolitical risk is high without the use of and always-thinking AI platform, and I recommend you shouldn’t either. We simply don’t get enough information and data points to trade country ETFs intelligently on our own and so the use of AI adds phenomenal knowledge leverage to every trade in assets where information and historical data is limited. I can’t say enough about what the power of AI can do for portfolios and empowering investors to capture consistent gains week after week, month after month. RoboInvestor subscribers have enjoyed a fantastic and enviable win rate on all closed trades of 87.91%.
Within the RoboInvestor Portfolio, not only do we utilize only blue-chip stocks like Walmart Inc. (WMT), Microsoft Corp. (MSFT), Proctor & Gamble (PG), Dominion Energy (D) and JPMorgan (JPM) while also putting to work ETFs in gold, Treasury Bonds, currencies and specific sectors such as retail, industrials and homebuilders. It just depends on what and where the near-term opportunities lie as determined by our AI tools that provide the highest reward with the least amount of risk trades to us.
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