Chinese equity indexes are at their highest levels in 3.5 years.
In local currency, Chinese stocks look even better– the Shanghai Composite is trading at its highest level since 2015.
And while iShares Large Cap China $FXI is up 33% off the April lows, keeping pace with or slightly beating the S&P 500 and developed Europe, the situation for China is a bit different.
Unlike its global counterparts, which have been in uptrends for years, the bull market in China is literally just getting started.
While the US and Europe have been grinding higher, Chinese stocks have been stuck in a massive accumulation phase for the past several years.
We covered the historic initiation thrusts in China last fall. While these kinds of momentum readings give the green light for a fresh uptrend, they don’t tell us when exactly it’s coming.
In the case of China, I think it’s starting right now. Any bit of upside momentum at the current level will result in a decisive resolution of these textbook reversal patterns.
FXI and KWEB failed to break out at this same level in October of last year, after the momentum thrust, and fizzled out right here again in March.
But I’m thinking things are different these days… and the third time is going to be the charm.
Unlike those other tests, there is clean and clear supporting evidence in the form of bullish risk appetite this time around.
Here’s our “ARK of China” custom index to illustrate this point.
It is an equal-weight basket of some of the highest-growth and most speculative tech stocks China has to offer.
The ARK of China Index is breaking out and reclaiming its VWAP from the prior-cycle high, which is something it could not achieve earlier this year, when the index found resistance and rolled over at the same level.
In other words, the most risk-on Chinese stocks are completing a trend reversal and leading the charge higher.
What could be more bullish?
A US market equivalent would be analyzing the relative trends in discretionary, technology, or speculative technology stocks to assess whether investors are embracing risk.
Investors reaching for an increasing level of risk is a fundamental bull market behavior. A bull cycle couldn’t sustain itself without this kind of activity.
And right now, for the first time in several years, the animal spirits are out in full force in China.
The most risk-on stocks are completing a major trend reversal… and if the breakout sticks… I expect the rest of China to do the same.
That means funds like FXI, KWEB, and CQQQ will all be embarking on fresh uptrends.
Are you ready for it?
I sure am.
We added a handful of new China calls via Breakout Multiplier last week, and we’re already off to a great start with them.
We sold our BIDU calls for a double today. We just bought them on Wednesday of last week, following a quick post-earnings selloff. Not bad for a few days' work!
