U.S. stocks are back to all-time highs. But Chinese stocks have stolen the spotlight in recent weeks.
Since 2021, most headlines about the Chinese economy have been nothing but bad news. That’s not the case this time…
Instead, Chinese stocks are soaring. One benchmark index is up well over 20% since its September low. And it rallied for 13 straight days along the way.
That’s a rare situation. According to history, it means the China rally can last… In fact, we could see another 22% gain over the next year.
Let me explain…
Chinese stocks are soaring for good reason. Last month, the Chinese government announced sweeping plans to jump-start its economy and boost its stock market.
The plan is to cut interest rates and free up more money for banks to lend out. Beijing is also creating new lending vehicles so Chinese businesses can pursue more mergers and acquisitions… and buy more stocks.
This is similar to the massive stimulus we saw in the U.S. when the pandemic struck. The news of the changes surprised investors. And Chinese stocks soared.
One way to see it is the Hang Seng China Enterprises Index (“HSCEI”). This index holds the major Chinese companies listed in Hong Kong. And it just went on a huge tear. Take a look…
The HSCEI has rallied 27% off its recent low in September. It broke out to a multiyear high. And as we mentioned, the index rallied for 13 straight days along the way… which is incredibly rare.
That has happened only once before since 2000. So to get a better idea of what this could mean going forward, I looked at every instance of eight or more consecutive up days for the HSCEI.
These kinds of rallies are still rare. We’ve only seen 11 similar setups in nearly 25 years. And they tend to lead to more gains. Take a look…
Many investors think of Chinese stocks as dead money. But the HSCEI rose 5.8% in a typical year since 2000. (You might be surprised to learn its annual total return was higher than the S&P 500 over the same period.)
Still, Chinese stocks boom and bust in a much bigger way than U.S. stocks. So buying at the right times can drastically improve those returns. And buying Hong Kong stocks after a streak of winning days is exactly what you want to do…
Similar setups led to 10.2% gains in three months, 15.3% gains in six months, and 21.5% gains over the next year. Plus, the HSCEI was up 82% of the time a year later.
This market has soared at an incredible rate. And we’ve already seen Chinese stocks pull back after the incredible 13-day win streak. But that doesn’t mean the rally is over…
History shows that the recent move is a good sign. Chinese stocks will likely keep soaring from here. And that makes this a market you need to consider owning right now.
Good investing,
Brett Eversole
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Source: Daily Wealth