It's hard to miss the "tough on China" mood these days... As we all know, Donald Trump just won the presidential election. And taking a tougher stance on China was part of his platform.
What China's Biggest Retail Event Is Saying About Its Economy
By Vic Lederman, editorial director, Chaikin Analytics
It's hard to miss the "tough on China" mood these days...
As we all know, Donald Trump just won the presidential election. And taking a tougher stance on China was part of his platform.
In particular, Trump has proposed steep tariffs on Chinese goods imported to the U.S.
As such, folks are wondering how the Chinese economy is doing today. And how will it fare under another Trump administration?
After all, China still sells more than $420 billion a year to U.S. businesses and consumers.
Steep tariffs on those goods would mean higher prices for American consumers buying them. And that means U.S. buyers would look elsewhere to buy products to avoid Trump's tariffs.
Indeed, China's export-heavy manufacturing industry has contracted in recent months.
Meanwhile, the country's real estate market is still in tatters. Property prices across the country fell for a 15th straight month in September.
But when it comes to Chinese consumers, things aren't looking so bad. In fact, it's the complete opposite...
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Each year, around this time of year, China holds its biggest retail shopping event.
It's called Singles' Day. In other words, it's a celebration of being single – sort of the opposite of Valentine's Day.
In 2009, Chinese e-commerce giant Alibaba (BABA) decided to turn Singles' Day into a 24-hour shopping bonanza.
Every November 11, Alibaba offers steep discounts on online goods through its Taobao and Tmall platforms.
Chinese consumers love it. They've turned Singles' Day into the biggest one-day shopping event in the country.
The last Singles' Day before the pandemic hit, Alibaba sold a whopping $38 billion worth of goods in one day.
Since then, Singles' Day has morphed into a multiweek event. This happened because 24 hours wasn't enough time to fulfill all the orders from all over the country.
Other e-commerce players have also joined in. They host their own Singles' Day shopping programs.
This year, the Singles' Day shopping spree started on October 14 and ended on November 11.
According to data provider Syntun, sales across all major e-commerce platforms grew about 27% to 1.44 trillion yuan. That's about $200 billion.
That figure is about 20 times larger than the $9.8 billion U.S. online retailers sold during Black Friday last year.
It's also not too far from the $254 billion sold online during last year's entire holiday season in the U.S.
Moreover, that 27% growth compares starkly with the 2% growth the event did last year.
In other words, when it comes to China's online-retail industry, consumers are spending.
We won't know how China's e-commerce platforms each did until fourth-quarter results come out...
But what's important is that domestic consumption in China is strong.
As a percentage of GDP, consumption makes up about 40% of the total in China.
That's still well below the 68% ratio of consumption to GDP in the U.S. And a big chunk of China's GDP is still driven by manufacturing and investments.
So China will need consumption to be strong if it's going to survive what's coming...
Once again, I'm talking about Trump's looming tariffs against Chinese goods.
While the exact details of this strategy aren't clear yet, those tariffs could be as high as 60% and take effect early next year. They will hurt investments in China and reduce the country's exports over time.
Manufacturers will be looking to build factories outside the country.
For instance, China is the world's largest electric-vehicle ("EV") market. The country's new-energy-vehicle ("NEV") sales alone almost equal the entire U.S. auto market.
But China faces steep tariffs when exporting EVs to the U.S. and Europe. And the only way to get around that is to build factories overseas.
The same is happening for things like smartphones and household appliances.
This means a challenging time ahead for Chinese manufacturers. It also means a period of strong growth is right around the corner for Chinese retailers.
The Chinese government doesn't have much choice. It needs to stimulate domestic demand to make up for the potential loss of exports. And that would boost an already vibrant retail market.
When it comes to stocks that would benefit, the KraneShares CSI China Internet Fund (KWEB) is full of major Chinese e-commerce players.
In fact, the fund's top five holdings are all in the business of selling goods or services online.
The Power Gauge has picked up on this potential strength. Right now, KWEB has a "very bullish" rating in our system...
The stock was largely flat for most of this year until late September. That's when the Chinese government announced some massive stimulus measures to help its economy and stock market. And Chinese stocks soared in response.
I'll note that Chinese stocks have pulled back a bit since then. And they fell further in the wake of the U.S. election.
As it stands so far in 2024, KWEB is up about 11%.
Meanwhile, KWEB's Chaikin Money Flow indicator in the Power Gauge has turned lower recently. That means the so-called "smart" money on Wall Street isn't yet done taking profits. So I would want to see a stronger signal in this indicator before putting money to work.
Overall, it's a nuanced picture...
Investors anticipate big tariffs on Chinese goods. So they've been leery of Chinese stocks recently. But continued strong domestic demand from Chinese consumers means KWEB's holdings would benefit.
I'll have my eye on KWEB as a way to take advantage of growing Chinese consumption. Despite the doom and gloom over tariffs, it's worth keeping KWEB on your radar.
Good investing,
Vic Lederman
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.48%
10
16
4
S&P 500
-0.64%
148
265
82
Nasdaq
-0.69%
35
53
12
Small Caps
-1.35%
600
957
358
Bonds
+0.58%
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are somewhat Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Energy
+1.87%
Financial
+1.76%
Discretionary
+1.49%
Staples
+1.03%
Utilities
+0.55%
Communication
+0.46%
Industrials
-0.51%
Real Estate
-0.56%
Information Technology
-1.22%
Health Care
-3.08%
Materials
-3.59%
* * * *
Industry Focus
Oil & Gas Equipment Services
1
13
16
Over the past 6 months, the Oil & Gas Equipment Services subsector (XES) has underperformed the S&P 500 by -24.18%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #20 of 21 subsectors.
Indicative Stocks
RIG
Transocean Ltd.
HP
Helmerich & Payne, I
HLX
Helix Energy Solutio
* * * *
Top Movers
Gainers
TPR
+12.8%
WYNN
+8.65%
FSLR
+7.14%
DIS
+6.23%
ENPH
+5.25%
Losers
LDOS
-13.6%
SMCI
-11.41%
AMTM
-10.87%
GD
-6.88%
TDG
-6.7%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
SPB
TFSL
No earnings reporting today.
Earnings Surprises
AMAT Applied Materials, Inc.
Q4
$2.32
Beat by $0.13
DIS The Walt Disney Company
Q4
$1.14
Beat by $0.03
ASTS AST SpaceMobile, Inc.
Q3
$-1.10
Missed by $-0.90
* * * *
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