I want to take you back to last week.
Right before the market closed on Thursday.
I was watching the Asian markets. The Shanghai Index (SSEC), to be exact.
And I couldn’t believe what I was seeing.
It was if every move higher or lower warranted a new headline.
In the left corner, one outlet said Asian markets were advancing on positive Chinese data.
And in the right corner, Asian stocks were sinking according to another source.
Why can’t mainstream media outlets just agree to disagree?
That’s quite a dramatic difference between the two headlines. I mean, it was less than 24 hours apart.
The SSEC was down a fraction. I really mean it. The market fell 0.23%. That’s not a sinking market in my books. It’s statistically irrelevant.
The SSEC is only down 2.2% even from the high on 8 April.
If we look around Asia, we will come to the same conclusion. Last week was not a blood bath at all.
Shares had an Easter pullback. It happens. Volume decreases as traders go on holidays.
Shenzhen was down 0.26%. Hang Seng was down 0.6%. The Nikkei was down 0.62%. The Korean KOSPI, the worst, down 1.01%.
What’s the big problem here?
Are Asian shares going to melt up?
If you are unfamiliar with the term ‘melt up’, it’s a dramatic and unexpected improvement in performance as stocks boom. And it’s often accelerated by fear of missing out, as investors rush in.
It’s the buzzword right now.
Most people think it will happen in the US.
I don’t. I think it will happen in China.
The base for this idea appears strong.
It appears that analysts previously underestimated the strength of the Chinese economy.
Data recently released by China’s National Bureau of Statistics shows the country’s economy growing by 6.4%.
Chinese retail sales also grew by 8.7% in March. This beat our (Australia’s) lousy February month-on-month increase of 0.8%.
Since the start of 2019, the Shanghai Index has risen as high as 34.7%.
But the Chinese market has moved on improved earnings, not on speculation.
As an example, a star performer is Muyuan Foods Co., Ltd., which breeds and distributes pigs throughout China. Muyuan’s share price has increased from roughly 29 yuan to 66.87 yuan. That’s roughly $6.13 to $14.04.
I have attached the company’s chart below.
And the second example is Yangzhou Asiastar Bus Co., which specialises in the development and manufacturing of passenger vehicles.
This company has seen an increase in its share value from 6 yuan to 12.30 yuan, which is around $1.27 to $2.30.
That’s two examples of companies with completely different market caps rising near 100% since the start of 2019.
Though, there are plenty more.
This gives me reason to believe there may be more growth to come in the second half of the year.
Yes, time to punt on China!
One of the hot markets in China right now is manufacturing.
Yes, good old manufacturing. You might be surprised, considering the trade war happening now.
Yet, manufacturers in China are deploying various tactics to maintain their business, including discounts, tax breaks, reducing their workforces, and even moving production overseas in some cases.
Take Botou Golden Integrity Roll Forming Machine Co., Ltd as an example (yes, that is the company name).
It lost some US customers after US tariffs were introduced. And now it’s offering a hefty 8% discount in a bid to re-attract US customers.
Then you have AUFINE Tyre, which rented a warehouse in California last year to circumvent the tariffs.
Of course, China won’t publicly cheat on tariffs. It will circumvent the whole situation using every loophole it can find.
I expect manufacturing will to continue to increase. And China will continue to be a dominant choice for international companies. At least for the time being.
That could draw more investors into Chinese stocks.
What I love about the Chinese market is that it has a history of ‘melting up’.
I’m backing Chinese shares to go on another ride like we’ve seen before.
Already in 2019, dozens of shares have risen over 100%.
Investors are stashing cash back in the market.
I suggest you consider getting on board the same train. It’s time to stop being fearful and cash in.
Until next time,