Chinese Stocks And The Yuan Giving Signals On A Trade Resolution

February 22, 5:00 pm EST

As the anticipation has grown on a structural reform agreement between the U.S. and China, we’ve talked about what might be the leading indicators that China will make the necessary concessions to get something done.

Remember, by the end of last year, much economic data in China was running at or worse the 2009 levels (the depths of the global economic crisis).  Clearly, they are in trouble.  As for Chinese stocks, an ugly bear market of was triggered in early 2018 when Trump’s rhetoric turned into action.  He slapped tariffs on washing machines and solar panels (a signal of bark and bite).

But as we know, by December the spiraling data in China also began taking a big toll on global markets.  With this, we’ve had responses from global central banks, including in China.

Now, Chinese stocks have been important to watch, for clues on: 1) are they doing enough to stimulate the struggling economy, and 2) (more importantly) are they taking serious steps to get to an agreement on trade with the U.S.?

With the above in mind, Chinese stocks bottomed on January 4th. That was when China and the United States announced they would hold trade talks in Beijing that following week.  That announcement represented the re-opening of trade talks, and the potential of an end to the trade war – which was a welcomed relief signal.

Chinese stocks have since represented an important signal in the recovery in global stocks.  On that note, the Shanghai Composite is now up 15% from the January 4th bottom. So, the signal has been good.  And as you can see in the chart below, we’re trading through the 200 day moving average (the purple line).

Another spot we’ve been watching in my Pro Perspective notes has been China’s currency.

China’s currency (the yuan) ends the week near its strongest levels since July.  This is China’s attempt to show the Trump administration that they are willing to make concessions on the all-important currency (the tool that has driven the massive trade disparity and wealth transfer of the past three decades).

As we head into the weekend, we have these two “leading indicators” supporting what has been maybe the most optimistic tone we’ve heard yet on an agreement.  It was announced this afternoon that the head Chinese trade negotiator would be extending his trip to Washington through the weekend.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.