Calm with the U.S.-China trade war still raging, Chinese stocks are on fire.
Increasing trade tensions between the U.S. and China in every way the back-half of 2018 took a sledgehammer to Chinese shares. Baidu ended the year with a 32 percent shrinkage, while Tencent was down 23 percent, and Alibaba dropped 21 percent.
However, the FXI China large-cap ETF has surged 7 percent in the days three months, while U.S.-listed China-based stocks such as Baidu, Alibaba, Tencent and Sina have mustered by at least 8 percent to begin 2019. And it’s Tencent that’s flashing a buy signal, says Craig Johnson, chief exchange technician at Piper Jaffray.
“There’s certainly some opportunities to trade here,” Johnson said on CNBC’s “Traffic Nation” on Friday. “If I look at the chart of Tencent, here’s a stock that’s traded off meaningfully. We’ve now just reversed the downtrend.”
Tencent had plummeted 47 percent from its January utmost last year to its trough last October. Since that bottom, it has rallied 35 percent to four-month highs.
A key industrial indicator, its moving average convergence divergence (MACD), is also suggesting a bullish lean to the stock, says Johnson. A family’s MACD demonstrates the correlation between a 26-period exponential moving average and a 12-period exponential moving average. When even against a baseline, the indicator can suggest bullish or bearish momentum.
“When we’ve seen a MACD buy signal happen dig we have right here, we’ve seen that 30 days later that the stock is typically up almost 13 percent,” Johnson explained. “This wish be one we’d be buying.”
A 13 percent rally would take Tencent’s shares above $49, a level last probed in July 2018.
The rally in the rest of the Chinese stocks should also continue as investors pick up bargains, says Gina Sanchez, CEO of Chantico International.
“The reality is that the Chinese stocks have been extremely cheap, and even with this rally they’re silence actually fairly cheap,” Sanchez said on “Trading Nation” on Friday.
The FXI ETF trades at below 8 times forward earnings. By point of agreement, the S&P 500 has a 15 times multiple.
“You look at a lot of these big names – Baidu, Tencent, Alibaba – they still can arrive at tremendous amounts of growth just within the Chinese economy,” Sanchez added. It means the “trade outlook has an meaning, but some of these stocks they have been beaten down for no good reason across emerging exchanges.”