Last Updated on November 13, 2022 by Mathew Diekhake
It’s not easy right now to pick Chinese stocks given the negative sentiment by the capitalists surrounding the ruling Chinese Communist Party. But we’re starting to see prices and circumstances that might signal some buying points.
Xpeng has fallen to nearly 4 times under its 200 SMA. Michael Burry came out recently and hinted the stocks that are not yet under their 200 SMAs are still likely to fall.
Burry also said that Chinese stocks are having an “America in early 2009” moment, and if you look at the S&P500 in early 2009, it was the beginning of the new bull market. Moreover, Burry tweeted this roughly six weeks ago now and Chinese stocks have only continued to fall since then, many of them considerably lower.
In our last Xpeng post on October 25, we suggested the stock looked attractive, but you can see in the chart that there were not many green buying days yet. However, if you look at the chart in this post, you will see that 6 of the last 8 days have been green days, signaling demand coming in at this price and validating our original thought of it being an attractive buy. Since the price is still at $6.62 at the closing bell today, it hasn’t moved much off the bottom, and the risk-reward becomes more attractive than back on October 25.
Many retail investors are too scared to enter the Chinese market because they fear that American fund managers are going to continue to sell those stocks. However, if Michael Burry, a staunch right-wing neo-con fund manager, says Chinese stocks are potentially close to bottoming, it might give you more confidence in entering at least some of the most attractive Chinese stocks such as Baidu and Alibaba. If you believe in EVs, you might also want to add Xpeng and Nio to that list.
Image credit: FinViz
November 1, 2022 @ 15:53
Here is a recent tweet from Michael Burry:
Meet the new boss, he is the same guy as the old boss. The Hang Seng recently returned to the same level as it was in 1997 — 25 years ago. In that 25 years, Chinese GDP has multiplied by 18. In 1997, the valuation of the stock market was x20 earnings, x10 EV sales, and x3 tangible book. Now the same valuations are 7/1/1. Note: 3 of the last 4 presidents served 3 terms.
Is he saying to invest in Chinese stocks now?
November 1, 2022 @ 15:54
Yes, he is suggesting that in theory China looks cheap. He is saying in the last 25 years GDP has been x18. And back then stocks were x20 earnings. He is saying though Hang Seng is at the same level, earnings are only x7 earnings. Old China with a lot of growth: 20/10/3. Today’s China: 7/1/1/. Yes, he is saying buy.
I’m not sure why the Hang Seng being at the same level suggests China is on track to x18 in the next 25 years. Maybe he isn’t. But we know that many fund managers are expecting a lot of growth in China. That doesn’t necessarily mean all fund managers are investing in China though. Charlie Munger does. Warren Buffet chooses to stay away. The reason the Chinese stocks are so low today is that many people are like Warren Buffet. In my opinion, chances are China sees a lot of growth. If it weren’t for Covid-19, which I am no expert on, China’s growth would be unstoppable. Maybe it still is. Many have commented on China’s future growth prospects, including Elon Musk. Elon has said China will be the leading nation and has suggested there will be no stopping it from here. China isn’t actually a communist country. It’s a market economy and quite clearly a capitalist country. My guess is that “common prosperity” will mean they plan to look after the poor. But I don’t see them aggressively stopping growth. All signs point toward them wanting to grow as though they were a capitalist country, aka allowing individuals to start whatever businesses they want and see where they end up. With that foundation, growth is inevitable.