Monday , December 17 2018
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Tariffs to the left, tariffs to the right…Contrarians buy China!

Summary:
The news about the Sino-American trade war seems to get worse every day. Callum Thomas pointed out that corporate managements are increasingly raising concerns about rising tariffs.  Chinese stocks have cratered, along with the stock indices of China’s largest Asian trading partners. However, a couple of contrarian buy signals are appearing. First, trade tensions are now showing up in the one place that you might expect, FX volatility.  As well, Chinese and other Asian markets are washed-out and poised for relief rallies, which would also be supportive of higher global equity prices.  Poised for an oversold rally From a technical perspective, Chinese and Asian markets are showing signs of a turnaround. The Shanghai Index recently flashed a buy signal when the stochastic

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The news about the Sino-American trade war seems to get worse every day. Callum Thomas pointed out that corporate managements are increasingly raising concerns about rising tariffs.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

Chinese stocks have cratered, along with the stock indices of China’s largest Asian trading partners. However, a couple of contrarian buy signals are appearing. First, trade tensions are now showing up in the one place that you might expect, FX volatility.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

As well, Chinese and other Asian markets are washed-out and poised for relief rallies, which would also be supportive of higher global equity prices.
 

Poised for an oversold rally

From a technical perspective, Chinese and Asian markets are showing signs of a turnaround. The Shanghai Index recently flashed a buy signal when the stochastic recovered from an oversold condition, which was supported by a positive RSI divergence. Chinese share prices fell Monday because of softer than expected economic data, but such conditions may present as an ideal entry point.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

The Hang Seng Index in Hong Kong also exhibit a similar pattern of positive RSI divergence and stochastic buy signal.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

The South Korean KOSPI also flashed a stochastic buy signal.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

The same goes for the Taiwan market, which is important as it is a bellwether for the semiconductor industry.
 

Tariffs to the left, tariffs to the right…Contrarians buy China!

I could go on, but you get the idea. In short, the stars are lining up for an oversold rally in China-related plays. After all, how can you not buy when pictures like this one goes viral?
 

Tariffs to the left, tariffs to the right…Contrarians buy China!
About Cam Hui
Cam Hui
Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as an equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989. He is left & right brained modeler of quantitative investment systems. Blogs at Humble Student of the Markets.

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