When the trade war between China and the United States really started to intensify, the Trump Administration placed $50 billion in tariffs on Chinese goods. China fought back and placed $34 billion on US goods. President Trump has stated that these tariffs were meant to finally punish China for stealing intellectual property, as well as a measure to cure the trade imbalance. Many Americans are thrilled that the current administration is trying to level the playing field between the two countries. President Trump is promising that if China tries to retaliate further, his administration will add an additional $200 billion in tariffs. Economist Ted Bauman says that not everyone agrees with the trade war. He says that a trade war only produces losers and that no country wins. While Ted Bauman is against the trade war, he feels that it has helped to make Chinese stocks very cheap and a good buying opportunity for investors.
For investors who want to diversify into cheaper equities, Ted Bauman advises them to buy the iShares China Large-Cap ETF. This security composes of some of the largest Chinese companies publicly traded. One metric Ted Bauman points to in order to convince investors this is a bargain is a price-to-earnings ratio. The ratio for this ETF is only 2.6 and investors were willing to purchase this ETF when the ratio was as high as 15 only a few years ago. The ETF is almost as undervalued now as it was right after the financial crisis ended. Mr. Bauman also added that the rest of the world is experiencing a stock market decline, while the US markets seem to be topping.
The trade war seemed to really heat up at the beginning of June. The Chinese Yuan began to fall as the trade war rhetoric was getting really heated. Some financial experts believed the Chinese government was devaluing its currency as a way to counter the tariffs. As the yuan continued to fall, Chinese equities followed suit. To date, the Shanghai Composite has lost eighteen percent of its value. For investors who also agree that US stocks are extremely overvalued, Ted Bauman would advise not to completely sell all one’s stocks, but rather to invest in cheap Chinese shares.
About Ted Bauman: medium.com/@TedBauman