Market Watch: The Week Ahead

Investing in hated assets is a great way to outperform the market... when the timing is right. It's not just about buying anything that the market doesn't like – or has overlooked. There's usually a good reason for that.

The Power Gauge Is 'Very Bullish' on this Contrarian Play By Vic Lederman, publisher, Chaikin Analytics Investing in hated assets is a great way to outperform the market... when the timing is right. It's not just about buying anything that the market doesn't like – or has overlooked. There's usually a good reason for that. True contrarian investing is about knowing when an asset is offering value that other investors don't see yet. So when the rest of the market finally catches on, contrarian investors reap the rewards by getting in earlier than other folks. China has been one of the biggest contrarian plays in the world. That comes down to a few reasons... The country's real estate market makes up about a quarter of GDP. And it's struggling to recover from a multiyear crackdown on speculation. Additionally, China's population isn't growing at a rate that will ensure abundant, cheap labor. At the same time, investors don't trust the data coming from the Chinese government. They believe the Chinese economy is growing much slower than the government says. As you know, China has also been the main target of President Donald Trump's trade war. Trump and Chinese President Xi Jinping have struggled to meet eye-to-eye on trade. And Trump has threatened a staggering 145% tariff on Chinese imports. The U.S. government has also openly stated its goal of containing China – both economically and militarily. Considering all this, it's no surprise that many folks have downright hated the idea of investing in China... Earlier this year, Morgan Stanley (MS) said that global investors in emerging markets had allocated only 26.6% of their funds to China. That's below the 29.2% weighting that China has in the MSCI Emerging Markets Index. Now, being underweight by about 2.6% might not sound like a lot. But over more than $1.4 trillion in assets are benchmarked to the MSCI's index for emerging markets. That means more than $33 billion is missing in allocation to Chinese stocks. But China has shown that – as contrarian investments have done in the past – it can massively outperform the markets... For example, after Trump first launched his trade war against China in 2018, Chinese stocks – as measured by the CSI 300 Index – gained about 38% the following year. That compares with a roughly 29% gain for the S&P 500 Index over the same time frame. In 2024, China's stock market was once again hated. Investors were worried about its real estate market and economy. Its stock market fell about 4% in the first eight months of the year. Meanwhile, the S&P 500 gained around 19%. But in September, the Chinese government announced a series of stimulus programs. China's stock market soared as much as 35% within a month. That left the S&P 500's roughly 2% gain in the dust. Today, China looks like it's in a similar situation. And that means potentially the same contrarian opportunity for investors... Recommended Links: Here's What You Missed Yesterday As the media warns of a historic bubble in stocks, investors are turning to one man for answers: a Wall Street legend who has predicted every major stock market turn for the past five years. Today, he's tackling your top questions – on tariffs, gold, the Federal Reserve, the dollar, and which specific stocks you should consider selling immediately. Click here to tune in now. 'I Don't Like Trump... But This Could Make You Rich' Wall Street legend Whitney Tilson didn't vote for President Donald Trump, but he says Trump's boldest financial move yet could be game-changing for investors. It's directly tied to a newly signed executive order... And it could unlock trillions in U.S. wealth. See why Whitney is betting big and how you can, too. A Valuation Gap Between U.S. and Chinese Stocks As you know, Trump had some big numbers in his "Liberation Day" tariff announcement back in April. He aimed some big tariffs at China and neighboring countries like Vietnam, Cambodia, and Thailand. These tariffs are meant to push manufacturers out of China by making it too expensive to make goods for export to the U.S. And the U.S. government is on the lookout for Chinese efforts to evade trade restrictions... Earlier this month, Reuters reported that U.S. authorities had secretly put tracking devices on shipments of AI chips. The government wants to prevent these high-tech goods from being exported to Chinese buyers. The Trump administration has also pressured U.S. chipmakers like Nvidia (NVDA) and Advanced Micro Devices (AMD). He wants the companies either sell weaker versions of their chips to China... or pay a 15% export tax in exchange for an export license. As you know, the trade situation is constantly evolving. So these kinds of policies could also change in a heartbeat depending on how U.S.-China trade talks progress in the coming months. Meanwhile, one of the world's largest hedge funds, Bridgewater Associates, recently reported that it sold all its U.S.-listed Chinese holdings in the second quarter. Despite all the reasons China continues to be a hated market, it has held up well this year. The CSI 300 is up about 11% year to date compared with a roughly 10% gain for the S&P 500. This tells us is that China, for all its faults and risks, is still attracting money from investors. In July alone, long-only funds poured $2.7 billion into Chinese stocks. That's because China is offering investors value relative to its global peers – at least for now... First, take a look at the below chart. It shows the historic valuation of the MSCI China Index... This index holds a basket of 558 Chinese stocks. The holdings trade in China, Hong Kong, and "over the counter" in the U.S.      Right now, it's trading at a forward price-to-earnings (P/E) multiple of about 12 times. Meanwhile, the S&P 500 is trading at a forward P/E of around 22 times. You can also see on the chart that the MSCI China Index's forward P/E ratio is nowhere near its historic highs. The last peak was in 2021 when it reached about 19 times. That's a more than 50% premium to the current valuation. On the other hand, the S&P 500 is trading close to its 2021 peak valuation. And it's about 10% away from its all-time-high valuation during the dot-com bubble. Take a look... China has a history of outperforming the U.S. markets by a wide margin when most investors least expect it to. And right now, the valuation gap between the two markets is too wide to ignore. Additionally, the Power Gauge sees strength in Chinese stocks right now... The Power Gauge Is 'Very Bullish' on Big Chinese Stocks In the Power Gauge, we can take a look at Chinese stocks through the KraneShares Bosera MSCI China A 50 Connect Index Fund (KBA). This exchange-traded fund ("ETF") holds 50 large-cap Chinese stocks listed in either the Shenzhen or Shanghai Stock Exchanges. So it's a good proxy for Chinese stocks. And right now, the Power Gauge is "very bullish" on KBA. Digging deeper, KBA's Chaikin Money Flow indicator has been strong since mid-July. That's around the time that global funds were pouring $2.7 billion into Chinese stocks. And it means the "smart money" on Wall Street still likes the fund today. If Chinese stocks once again outperform their U.S. peers in the coming months, keep an eye on KBA. This ETF is a way to take advantage of one of the best contrarian plays in the market today. Good investing, Vic Lederman Market View Major Indexes and Notable Sectors     # Hld:     Bullish     Neutral     Bearish Dow 30 +0.31% 11 14 5 S&P 500 +0.42% 160 230 109 Nasdaq +0.4% 29 49 22 Small Caps +0.83% 731 1001 306 Bonds -0.06% Industrials +1.03% 31 32 15 — According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed. *  *  *  * Sector Tracker Sector movement over the last 5 days Energy +3.7% Materials +2.08% Financial +2.03% Consumer Discretionary +1.68% Industrials +1.2% Real Estate +0.82% Communication +0.74% Information Technology +0.54% Health Care +0.21% Utilities -0.95% Consumer Staples -2.68% *  *  *  * Industry Focus Oil & Gas Equipment Services 1 16 13 Over the past 6 months, the Oil & Gas Equipment Services subsector (XES) has underperformed the S&P 500 by -16.28%. 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 AESI Atlas Energy Solutio ARIS Aris Water Solutions AROC Archrock, Inc. *  *  *  * Top Movers Gainers LLY +5.85% GEV +3.92% BA +3.51% GE +2.75% HWM +2.73% Losers KDP -6.91% EBAY -3.97% BF.B -3.83% BG -3.65% ERIE -3.64% *  *  *  * Earnings Report Earnings Surprises MDB MongoDB, Inc. Q2 $1.00 Beat by $0.34 OKTA Okta, Inc. Q2 $0.91 Beat by $0.06 NCNO nCino, Inc. Q2 $0.22 Beat by $0.08 *  *  *  * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, click here. You're receiving this e-mail at diansastroxz.forex@blogger.com. For questions about your account or to speak with customer service, call +1 (877) 697-6783 (U.S.), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized financial advice. © 2025 Chaikin Analytics, LLC. All rights reserved. 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