Shares of the Chinese tech company Didi Global (NASDAQ:DIDI) soared as much as 68% Monday morning after the Wall Street Journal revealed that Chinese government regulators were ending their security probe and removing the ban on new users. The news isn’t just boosting Didi stock – it has buyers swarming Chinese stocks across the board.
For the past year, increased government scrutiny has weighed on U.S.-listed Chinese firms, and many have fallen to multi-year lows. The country’s combative tone has driven investors out of many once high-flying tech giants, reasoning that the regulatory risk wasn’t worth the potential reward.
If today’s news surrounding Didi Global is the beginning of a friendlier Beijing toward public companies, the buying of Chinese stocks could continue. Here are three other China-related stocks you can play rather than chase Didi stock after such a scorching single-session jump. Two offer widespread diversification to protect you from any company-specific bad news. The third is an e-commerce giant with a far bigger balance sheet than Didi.
|FXI||China Large-Cap ETF||$32.70|
|EEM||Emerging Markets ETF||$42.68|
Chinese Stocks: China Large-Cap ETF (FXI)
Wall Street’s go-to fund for pure exposure to China is the iShares China Large-Cap ETF (NYSEARCA:FXI). It boasts 50 holdings and an average daily trading volume of over 40 million shares. As the name suggests, FXI focuses on the largest publicly available Chinese companies that trade on the Hong Kong Stock Exchange.
This morning’s Didi Global news had FXI shares rallying over 4% to a new two-month high. Heading into today’s session, prices had already carved out a higher pivot high and higher pivot low while breaking above the 20-day and 50-day moving averages. In short, we have a bullish trend reversal, and prices have room to run until the 200-day moving average comes into play at $36.21.
If you want to think the sentiment shift in Chinese stocks continues, then FXI is a great way to play it.
The Trade: Buy the August $33/$36 bull call spread for $1.10.
Alibaba (NYSE:BABA) shares were moving this morning, rising more than 8%. The gain has BABA stock vaulting past short-term resistance and the psychologically significant $100 level. The recent consolidation in the stock has helped the short-term trend to neutralize. Bulls should note the recent volume patterns, which show consistent accumulation following last month’s earnings.
Positive responses to quarterly reports have been a rarity this season, so the fact that BABA was able to put together a strong rally is noteworthy. As one of the biggest and most popular Chinese stocks in the market, Alibaba will undoubtedly participate, if not lead, any sustained recovery in the space.
The Trade: Buy the July $100/$110 bull call spread for $4.00
Chinese Stocks: Emerging Markets ETF (EEM)
If you want an even safer, or at least more diversified route, then the Emerging Markets ETF (NYSEARCA:EEM) is worth a shot. China comprises nearly 30% of the fund, but it also provides exposure to the broader emerging markets complex. Shares have been weighed down by the fallout in Chinese stocks and are now 26% off the peak.
Shares were up more than 1.5% this morning in sympathy with the Didi Global news and pushed over the 50-day moving average. We’ve seen many failed rallies this year, and there’s a chance this one plays out similarly. Nonetheless, cash flow strategies like covered calls and naked puts could pay out if you want to wager the low is in.
The Trade: Sell the July $41 naked put for 65 cents.