Anxiety in the market surrounding the potential of a trade war between the United States and China has sent stocks lower over the last two weeks. The Dow Jones Industrial Average narrowly averted its greatest losing streak in 40 years, ending after eight straight days.
The fears all began when the Trump administration took the first shot over the bow, implementing tariffs on $50 billion worth of Chinese goods. Not surprisingly, the Chinese retaliated with tariffs of their own on American goods.
The tit-for-tat continued with President Trump announcing on Monday that tariffs on an additional $200 billion worth of Chinese goods could also be implemented. As a result, I would expect the Chinese to fire back with more tariffs, too.
Part of the president’s reasoning has to do with China’s aspiration to become a major technology hub in the coming years. In fact, the Chinese government has an official plan in place that would allow the country to meet its goal by 2025.
During a typically quiet time of the year for economic and earnings news, the ongoing trade battle has taken center stage. And the unknown of what the ultimate outcome will be has led to a sell first, ask questions later attitude from investors.
Chinese Stocks Are Definitely a Buy on Current Weakness
But U.S. stocks haven’t been the only ones pressured as a result of the trade concerns. Chinese stocks have also underperformed, sending the SPDR S&P China ETF (NYSEARCA:GXC) to its lowest level in six weeks. And the iShares China Large-Cap ETF (NYSEARCA:FXI) is down 10% in just the last two weeks to its lowest level since September.
I understand the fear of what could happen if the current situation escalates into a full blown trade war. However, President Trump isn’t that difficult to figure out. As we’ve seen in the past, he goes big initially, but when the negotiating begins and the dust starts to settle we’re left with a different narrative.
I expect that will be the case this time around as well. And in the end, a true trade war will not develop.
As a result, the weakness we’re seeing in Chinese stocks can certainly be considered a buying opportunity. Regardless of tariffs, China is a fast-growing economy that will become a tech hub in the next decade. There is nothing the United States or any other country can do about that.
Whether you want to see that happen is not my concern. What is my concern is the potential investment here, so long-term investors willing to withstand the near-term ups and downs should look to pick up Chinese stocks on the weakness.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
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