Some analysts are going as far as to say the United States is winning in its trade war with China. The Trump Administration has placed tariffs on Chinese goods and they are ready to add an additional $200 billion if China retaliates. President Trump feels that the tariffs are necessary to punish China for stealing intellectual property and they will also help to lower the trade deficits that the Us has had for many years. Economist Ted Bauman believes the trade war is going to eventually have negative consequences for the US economy and will be the catalyst to end the US bull market in stocks. He has stated that no one ever wins during a trade war. Although Ted Bauman believes the trade war is unproductive, he feels that it has helped to make Chinese stocks super cheap.
Ted Bauman believes that a method that investors can use to take advantage of these cheap Chinese stocks is to by the iShares China Large-Cap ETF. The ETF is a weighted basket of stocks with some of the largest company names in China. The combined earnings per share of the companies in the ETF are over $15. Investors usually use the price-to-earnings ratio to determine if a security is undervalued. The ETF has a ratio of 2.6, while many US-listed companies are well over 15. This metric shows just how undervalued the Chinese market is as opposed to the US market. The last time this ETF had a PE ratio at this level was at the end of the financial crisis in early 2009.
The trade war between China and the US became heated early in June. As President Trump vowed additional tariffs, the Chinese yuan began to fall in value. Many financial analysts were quick to call currency manipulation because they felt that the Chinese government was devaluing its currency to negate the effects of the tariffs. Chinese stocks also began to fall and since the beginning of the year, the Shanghai Composite has lost eighteen percent of its value. Ted Bauman feels that the bull market in US stocks is going to come to an end sooner than most realize, and he feels that investors can take some profits from the US stocks and buy Chinese shares at bargain prices.
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