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“Chinese restaurants in America today outnumber the five largest fast food chains in the US all combined.” – Donald Trump
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US futures are in rally mode this morning as strong earnings from Cisco (CSCO) push that stock to record highs. The S&P 500 is on pace to open higher by about 0.3% while the Nasdaq is up 0.2%. Dow futures are leading the way, gaining 0.81%, which would put the index back above 50,000. The picture for US markets is positive now, but there’s a busy schedule of economic data on the calendar, kicking off with jobless claims and Retail Sales at 8:30.
Treasury yields are pulling back a bit with the 10-year yield down 4 bps to 4.44%. Oil prices are modestly lower, but WTI remains above $100. There have been no major developments out of the Middle East. Both gold and Bitcoin are little changed.
Asian markets were mixed overnight, with Japan down 1%, while Chinese stocks fell 1.5%. South Korea, meanwhile, bucked the trend, rallying 1.8%. The meetings between Trump and Xi and their entourages are obviously the major story of the day, and investors will be looking for any headlines coming from those meetings. In Europe, equities are higher across the board with the STOXX 600 up 0.6%, led higher by a 1.5% rally in Germany.
With all the attention shifting to China over the last 24 hours, investors rotated into Chinese stocks yesterday as the KraneShares China Internet ETF (KWEB) rallied just under 5% on strong volume for its best day since late January. Despite the rally, the stock finished yesterday’s session just below the downtrend line that has been in place since last October. KWEB has clearly stabilized since early April following steady losses over the preceding six months, but for bulls to get excited, they’ll need to see that downtrend get broken.
Chinese tech and US stocks have followed interesting paths over the last decade. While the performance was a close race between the world’s two superpowers in the last half of the last decade, in the post-Covid era, the two ETFs have followed diverging paths. Five years ago, the performance of KWEB and SPY in the prior five years was nearly identical. Since then, they have moved completely in opposite directions. As a result, the trailing 10-year performance of SPY is a gain of over 250% compared to a decline of 15% for KWEB! You can debate all you want about which world leader has the upper hand on a diplomatic basis heading into this summit, but from a market perspective, Trump is holding the nuts.
The relative strength of KWEB versus SPY further illustrates the sharp contrast. Chinese tech stocks fell off a cliff (almost literally) in the second half of 2021 and haven’t recovered since. Just in the last two weeks, the relative strength of KWEB versus SPY hit a record low.
At the individual stock/ADR level, Chinese stocks have experienced mixed returns this year. The snapshot below from our Trend Analyzer shows where nine of the largest/most active Chinese ADRs are trading relative to their trading ranges. YTD, some of these ETFs have seen big gains while others are down double-digits.
On a short-term basis, practically all these ADRs are doing well, as Pinduoduo (PDD) is the only one trading below its 50-DMA, while Trip.com (TCOM) is the only other ETF on the list that is not currently at overbought levels.
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