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How to Protect your Wealth by Investing in AI Tech Stocks

China SSEC Stock Market Fundamentals and Trend Analysis Forecast

Stock-Markets / Chinese Stock Market Sep 06, 2019 - 11:32 AM GMT

By: Nadeem_Walayat

Stock-Markets

"The Trade War is Over - And the winner is China" writes the clueless mainstream press just prior to the announcement of new Trump trade tariffs. This is part 2 of 2 of my latest analysis on the prospects of the Chinese stock market. (Part 1 - Trump Trade Tariffs US War with China Mega-trend Impact on Stock Markets). Note the whole of this analysis was first made available to Patrons who support my work China SSEC Stock Market Fundamentals and Trend Analysis Forecast.


China Stock Market Trade War Reality Check

Here's the reality of who is winning the trade war as played out on the battle ground of each nations general stock market indices.

The reality is that since Trump won the 2016 US election the US stock market is up 48% whilst China's is down 6%. Which illustrates the degree to which China has LOST the trade war.

And where the AI mega-trend is concerned this acts to answer the question that I often get asked as to why my focus is on US tech giants instead of including a whole host of Chinese copycat AI companies such as Tencent that tend to mirror US operations. We'll as the recent experience of Huawai illustrates, the worlds existing Super Power is going to increasingly make things difficult for western nations to do business with Chinese copycat corporations.

Whilst one can gain some exposure to the Chinese AI sector by investing in domestic tech companies such as Baidu, Chinese copy of Google. However my long-standing view is that Chinese corporations whilst expert at copying / stealing western technology, however are not so good at innovation due to the fact that the mass of Chinese people lack the freedom of thought and expression and hence are limited to what the Chinese mafia government allows them to think, that is until there is a bloody revolution of sorts that frees China of the mafia that infests their nation.

The same goes for the likes of Russia, and the developed Muslim world, which are infested with their own Mafias that act as a cap on innovation and thus restricted development. Of course the Untied States and other Western nations have their own limiting issues that seek to restrict freedom of expression and innovation most notable of which is the European Union that the UK under the catastrophic Premiership of Theresa May has remained in a state of paralysis for the past 3 years, experiencing a huge erosion of economic and political confidence. Which Boris Johnson's Premiership is now desperately attempting to correct the extensive damage done to the nation by the worst Prime Minister in British History! Which I will cover in-depth when I take a look at the prospects for the British Pound.

The bottom line is that Chinese corporations cannot compete against western corporations on a level playing field and so they cheat, as hundreds of thousands perhaps millions of chinese citizens are engaged in stealing western technology as sanctioned by the state. Which is I've advocated limit investor exposure to China due to the risks of the impact of the War with China mega-trend, it's just not worth the risk.

CHINA FUNDAMENTALS

Economy - Whilst we can take chinese economic data with a giant pinch of salt, nevertheless GDP of 6.2% (4% more likely) is still growing rapidly as China's GDP continues to converge towards that of western nations. With current GDP per capita of $9,000 set against the US of $60,000. So plenty of room for growth even under a corrupt communist dictatorship.

Corporate Earnings - The US stock market currently trades on a PE of 22 (S&P), whilst China currently trades at 13.6 that compares to about 16 when Trump took office. Given economic growth to date and the 6% drop in the stock market index then I would have expected a healthier Chinese stock market to be trading at say 9 or lower.

This suggests that the Chinese corporate sector is suffering a lot!. It's not generating earnings growth! For instance the US stock market has gained near 50% in price, whilst the market PE of 22 is lower than the 23 when Trump won the election. So the increase US stocks has been matched by strong earnings growth.

Therefore despite Chinese stocks being cheaper than US stocks on an historic basis, there is no sign that chinese corporate's are generating earnings growth to justify a bull run, which is what one would expect if a nation were LOSING a trade war. Add the risk of Trump escalating the trade war then this does not bode well for future Chinese corporate earnings and stock prices.

Technical Analysis

(Charts courtesy of stockcharts.com)

The SSEC has been in a bear market since it peaked at 5178 in June 2015. On the plus side following the Jan 2016 low of 2640, the bear market resolved in a trading range of between 3,500 and 2,500. The only negative thing is that the bear market may not be over given the recent lower low of 2450 and the recent lower high of 3289. Therefore the chinese stock market is discounting worsening economic fundamentals and more Trade war chaos.

On the plus side, elliott wave theory (for what its worth) is suggesting that 2450 could have been the bear market bottom and thus we could be about to embark on an Impulse wave 3 higher. Though this does not match the rest of this analysis.

On a shorter term basis the stock market appears to be wanting to break lower, initially targeting 2,830 and then 2500.

China SSEC Stock Market Conclusion

The downside is limited to around 2,450, whilst upside is capped at around 3,300. Immediate trend looks likely to head lower. Therefore if one was looking to accumulate for the long-term, i.e. for when China actually starts to grow its corporate earnings again. Then one could consider accumulating towards the lower end of the trading range. But as things stand the Chinese stock market is in a trading range coming out of bear market that is not showing any signs of breaking out anytime soon. In fact the stock market is looking pretty pessimistic in terms of the prospects for China, a harbinger of economic and social pain for the communist dictatorship. Where the clear primary triggering mechanism will be Trump announcing new tariffs on virtually ALL chinese imports.

The whole of this analysis was first made available to Patrons who support my work China SSEC Stock Market Fundamentals and Trend Analysis Forecast

So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2019 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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