Ted Bauman says that not everyone is in agreement about President Trump’s trade war, but it’s giving investors the chance to purchase stocks from the biggest companies in China. One example is iShares China Large-Cap ETF, and it is currently down 10 percent year-to-date.
The stocks that comprise the aforementioned ETF include China Mobile, Tencent Holdings, banks, insurance companies, chemical companies and oil companies. These companies are growing, and investors now have a chance to take part in it.
Along with that growth comes some of the lowest price tags the market has seen in several years.
In the past year, companies listed in the ETF listed above earned nearly $15.50 per share. Currently, the price-to-earnings ratio is equal to 2.6. To find prices at a valuation that low, you would have to travel back to the year 2010. In 2013, investors were willing to pay 15 times earnings for this ETF, so today’s prices are an incredible bargain.
If we look at this with an outlook toward dividends, we can still see the decrease. The yield of the fund’s semiannual distributions comes out to approximately 3.6 percent. That’s the highest that it has been since 2009. These companies are trading at their lowest stock prices as compared to their asset value.
According to S&P’s Capital IQ, the fund’s book value is $52.61 per share.
On Monday, investors were able to purchase this stock for $42 per share, and that is a discount of 22 percent. You would have to go back to before 2009 to see prices that low.
Things were very different in 2009 from the way they are today in 2018. Back then, China’s stock values were in harmony with U.S. stocks and global asset values, and new and old markets were digging their way out of the day’s financial crisis.
Now, we can describe the entire scene as “out of harmony.” If we imagine a teeter-totter, the U.S. market is on the top, and equity markets around the world are scraping the bottom.
The scenario described above is going to end at some point. When this happens, the newer markets will be able to enter the game again. Cheap markets like China’s will be able to offer investors growth and are going to be where investors will want to be.
Trump’s Trade War
President Donald Trump placed tariffs in the amount of $50 billion on China’s exports. Not to be outdone, the Chinese placed tariffs in the amount of $34 billion on American exports. After that happened, President Trump announced that he would add $200 billion in tariffs if the Chinese dare to retaliate. Because of the drama that has been unfolding, the indices have been moving down the scale.
The tariffs are considered to be President Trump’s answer to the intellectual property theft that China has been engaging in for several years. The fact that the trade practices were seen as unfair to American businesses is also a factor. To some, President Trump’s actions are a show of strength right before November’s elections. Every member of the House of Representatives is running to hold his or her seat this fall. Only 35 out of the 100 senators are currently running in an election this year.
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Trump’s trade war also had the effect of causing China’s currency to fall. Tariffs have been placed on Chinese goods, so this encouraged China’s government to loosen its hold on the yuan. As recently as August 13, the yuan was trading at 6.89 to the dollar. It could continue to move, but the actions taken by the Central Bank are expected to keep it below 7.
As the currencies move, the stock prices adjust to them. For example, the Shanghai Composite is down 18 percent for 2018. Tensions between China and the U.S. began to increase in June, and that is when the composite started to fall.
Does this mean that American investors should sell Chinese stocks?
If you were to ask Ted Bauman, he would tell you not to sell. It’s time to buy Chinese stocks!
Who Is Ted Bauman?
Ted Bauman was born in Washington, D.C., but he moved to South Africa to attend the University of Cape Town. He graduated after he earned two postgraduate degrees in history and economics. In the 25 years that he lived in South Africa, Ted Bauman worked in the nonprofit sector as a fund manager. Slum Dwellers was a project that he had a hand in serving, and it allowed him to be of assistance to more than 14 million people in 35 countries.
Mr. Bauman was never a finance or investment specialist, but he witnessed how governmental powers had a stranglehold on the people, and this made it impossible for these people to get ahead. He wanted to do something about this, so he was motivated to join Banyan Hill Publishing. After he had been back in the United States for a little while, his father recruited him to take over his current position as a finance writer, and that is how he became a part of Banyan Hill Publishing.
Ted Bauman currently writes The Bauman Letter to teach his readers how to trade the markets so that they can gain the personal freedom that everyone is seeking.
China has a strategy. The plan is to wait and see what President Trump is going to do next. The Central Bank is not using the yuan as a weapon. It is taking advantage of currency swaps to keep the yuan at its current value. It is allowing Tokyo to be the leading market in the area so that it can concentrate on tactics that will reduce speculation.
China’s government is placing just as many tariffs on American goods as America is placing on China’s goods, but it is going out of its way not to elevate the trade war. The state media pundits are speaking brashly while the government has its eye on the long term. Because of this, Chinese stocks are cheap right now. Alibaba is growing at this time, but its price-to-earnings ratio has recently fallen to 48.6.
China’s economy is two-thirds the size of the U.S. economy. Newspapers currently have a new headline in East Asia because they are reporting that China is going to start producing goods in Vietnam. It will be much cheaper there. China’s population is aging, and the people are starting to become consumers. The infrastructure in the country is first rate, and the people are educated. This means that its markets have finished emerging and are currently emerged.
What does all of this mean?
According to Ted Bauman, it means that China has plenty of consumers within its own borders, and since it is in control of overseas production, it can face the U.S. as an equal in a trade war. The U.S. appears to not have considered these truths, but since China has, it is preparing to be a secure entity in a sea of instability.
People are saying that America is winning the trade war, but this is not the truth. Whenever there is a trade war, there are only losers. All the participants can do is keep their losses to a minimum. China’s losses will be in its market share, and Chinese businesses will adjust to this, but it will be able to say that its economic woes are the fault of the U.S.
Because of the trade war, Chinese stocks are bargains for Americans. China is currently leaving its lower wage industries behind while it keeps a strong hold on other East Asian economies. The difference is that the U.S. is looking at China, but China is only looking at China.
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