Did you know there is a Chinese equivalent for all the top tech companies in the United States?
They do not import our technologies like most countries. They ban them. Then, they copy and recreate them with new names.
I love this clip from Silicon Valley, an old HBO show that poked fun at this. It was spot-on about a lot of things.
For purposes of this discussion, I ask you to forget any of your feelings on intellectual property theft and the general geopolitical concerns about Chinese technology. This has nothing to do with any of that.
This post is about making money on an emerging area of the international equities market.
There is a brand new bull market shaping up over in China. This is one of the largest and fastest-growing economies in the world. It is also home to some of the most innovative technology companies outside of America.
Interestingly enough, many of these Chinese tech leaders are also massive. They dominate the Chinese stock market, much like the Magnificent Seven dominates in the US.
In building exposure to China, my strategy has been to start with large anchor positions in these technology behemoths.
I did the same thing with the mega-cap growth stocks in the US two years ago. They were the early leaders. I don’t think China will be any different.
Allow me to introduce the FANGhai Composite Custom Index:
This is the same pattern we’ve been buying this entire cycle. It is a textbook rounding bottom, and it is just now completing - indicating a new uptrend is underway.
I have marked up the three phases of a market cycle in both the price and momentum chart.
You can see the downward-sloping 200-day moving average and bearish momentum regime on the left-hand side of the chart.
Then, the transition to a trendless state, characterized by a sideways moving average and neutral momentum regime.
And now, over the past few quarters, we can see a new uptrend forming. This is indicated by the rising moving average and bullish momentum regime.
A bullish momentum regime means RSI-14 is getting overbought on rally phases… and not getting oversold on corrective phases. This has been the case since April.
We should probably mention the historic momentum thrusts from September/October as well. They suggest the initiation of a new uptrend.
And how about the sentiment around China!? It’s exactly what you want to see at a major market bottom.
Long story short, the chart of this custom index tells us China’s largest and most dominant growth companies are completing trend reversals.
We want to own a lot of them. So, we’ll be doing deep dives into each one individually over the coming days and weeks.
For now, here’s a little on each of the seven components:
Alibaba Group (BABA): Leading global e-commerce and cloud services giant, often compared to Amazon. This is truly the "Amazon of China,” with a heavy footprint in e-commerce and digital services.
Pinduoduo (PDD): E-commerce platform rapidly growing through its group-buying model. Think of this one as the discount online marketplace of China, focusing on social commerce and price-conscious consumers.
Baidu (BIDU): China's top search engine and a leader in AI development, particularly autonomous driving and voice recognition. Think of this one as the "Google of China,” with a strong emphasis on AI and search.
BYD Co. Ltd. (BYDDF): A major manufacturer of electric vehicles (EVs) and batteries. This is the "Tesla of China.” It even trades more like Tesla than it does Chinese Stocks.
Xiaomi Corp (XIACY): A leading Chinese electronics manufacturer known for its smartphones, smart home devices, and plans for electric vehicles (EVs). This one is emerging as the “Apple of China,” or at least one of them. Their phones & electronics have a huge presence in Asia & Latin America.
JD.com (JD): Another e-commerce retailer in China. JD is actually the largest by sales and has become a leader in logistics with a robust ecosystem of physical and digital stores. Think of this one as a Chinese hybrid of Walmart and Amazon. JD’s subsidiary, JD Health, is the largest online healthcare platform in China.
Tencent (TCEHY): A global leader in social media (WeChat), gaming (Riot Games), and digital payments and services. This is basically the “Facebook of China.”
I am building positions in these industry leaders, and they will be my anchor investments for the new China bull market theme.
However, I like some a lot more than others.
We also have some honorable mentions to this list like Trip.com and Netease, which we will write about as well.
In addition, we always add kickers to our primary trend positions to make the most of the rally phases that come with bull markets.
To do this, we’re just adding leverage via call options and trying to time our entries into big up-legs.
