As I told my Cycle 9 Alert readers yesterday, Trump has long talked tough on China, calling it a currency manipulator and blaming it for manufacturing job losses in the U.S.
The tenuous relationship between the world’s #1 and #2 economies is coming into focus this week, as Chinese President Xi Jinping is scheduled to meet with Trump on Thursday and Friday at Mar-a-Lago.
Everyone is, of course, speculating how the meeting will go. But frankly, no one really knows.
My advice is simple: follow the money, not the news.
You see, it’s been exactly 100 trading days since Trump’s election win and he’s still dominating the news cycle. But if you’re only following the news, you may be missing out on a major turning point in the performance of U.S. and foreign stock markets.
Specific to U.S. equity markets, the immediate reaction to Trump’s win has been labeled the “Trump bump.” U.S. markets soared, leaving foreign markets in the dust between early November and late December.
But this year has played out differently, so far.
Foreign stock markets have outpaced U.S. markets. I suppose we could call it the “Trump slump.”
Let’s take a closer look at the sudden shift…
U.S. small-cap stocks were the biggest beneficiary of the Trump bump, between November 7 and the end of 2016. The Russell 2000 gained 14.3% in less than two months.
European markets lagged, gaining only around 3%.
Chinese stocks (FXI) lost nearly 6% over the same time.
And Mexican stocks took a beating on all the border-wall talk, losing a whopping 16%!
The one positive foreign-market outlier was Russia (RSX), which was up almost 18% during the Trump bump.
On the currency front, the U.S. dollar jumped 5.7% in those last two months of the year, while the China’s and Japan’s currencies slumped 4% and 11%, respectively.
But since then, the outperformance of U.S. markets over foreign markets has completely reversed. So far this year…
U.S. stock indices have edged only around 3% higher in 2017.
Meanwhile, European stocks are up about 8%.
Chinese and emerging-market stocks are up 11%.
And ol’ beaten-down Mexico is up a fat 18%, the most of any major foreign market.
Russia’s Trump bump also turned into a slump, as Russian stocks have lost 2% so far this year.
The U.S. dollar is down nearly 3% in 2017, while the yuan and the yen are up between 5% and 6% so far.
Bottom-line: U.S. markets are slumping this year, as money pours into foreign markets instead.
I’ve spent the past week probing foreign market buy opportunities for my Cycle 9 Alert subscribers. And all of my research points to the same place…
There are a growing number of ETFs that give investors exposure to China – everything from H-shares (traded by institutions in Hong Kong) to A-shares (traded only on the mainland)…
From small-cap to large-cap…
And including specific sectors of the Chinese economy, from real estate to technology to consumer goods.
On average, a basket of about 20 of these diversified China ETFs lost around 7% between November 7 and the end of 2016. So far in 2017, the same basket of ETFs is up 14%!
The depth and breadth of buying activity in Chinese stocks is too significant to ignore.
My Cycle 9 Alert algorithm has been triggering buy alerts on a majority of these ETFs, as well as on a growing number of individual Chinese stocks – many of which are top holdings of the ETFs.
In fact, of the 20 China ETFs I mentioned above, a full 16 of them have triggered Cycle 9 Alert buy signals in the last week or so. That means a wide swatch of the Chinese equity market is currently in a longer-term uptrend… and also showing market-beating momentum, relative to the S&P 500.
Those are the two key criteria I look for in Cycle 9 Alert – so China is now a buy for us.
It’s impossible to predict how Trump’s meeting with President Jinping will go, let alone how investors will interpret and extrapolate it. And there’s no way of knowing when or if the Trump “slump” will switch back to a Trump “bump.”
But all of my indicators are pointing to a higher-than-average likelihood that Chinese markets will continue to outpace U.S. markets for at least the next two to three months, which is the typical holding period for our Cycle 9 Alert trades.
As I said earlier, and as I told Cycle 9 Alert readers yesterday, it’s better to follow the money than to follow the news.
Ignore the drivel that comes from the Trump-Jinping meeting this week and instead take a closer look at Chinese stocks.
To good profits,
Editor, Cycle 9 Alert
Follow me on Twitter @InvestWithAdam
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