Buy when no one wants to buy

I just talked about the marijuana mania when people were chasing high to get into the space and advised not to rush into something just because of being hot. Conversely, I would suggest you to think about something that is perceived deadly risky and no one is interested in it.

Anyone is talking about the Chinese stocks these days? I bet you hardly hear anything positive about it in the past few months. Indeed when the US market has not only fully  recovered from its 10% correction but also made new highs again and again these days, the Chinese stocks have officially entered into the bear market with over 20% downdraft during the same time period. I guess the chilly market performance supports the businessmen’s feeling there that the Chinese economy may not be doing well if the trade conflict with the US is dragging on. So the sentiment for Chinese stocks is definitely extremely low and hardly anyone is interested in them. That’s the exact time my interest level starts to pop up. I think it is a good time to buy China at least for the near term for two reasons:

• After a brutal and relentless 25% crash, the Chinese stock market has reached to its lows not seen in the past two years. So the sentiment is extremely low, qualified for the most hated market title! But technically it is showing a typical bottoming pattern with a momentum quietly moving up, a positive divergence. It is often an early sign of a change of the direction.
• The headline news has nothing positive on the perceived trade war; rather it has even worsened with the recent announcement by the US government that $200 billion more Chinese goods will be taxed. Instead of typical panic selloff we are often seeing on this front, both the US stocks and more importantly the Chinese stocks were going up with the bad news. This kind of counterintuitive stock reaction to bad news is typically seen at the bottom, not at the top.    

I think chance is high that we may see higher stock prices in China in the next couple of months than lower. FXI is relatively safer one to bet for the Chinese stocks. Of course I may be wrong. Even if I’m right, it won’t be a smooth journey to climb up. Expect to see some volatility for the Chinese market!