In this article, I wanted to touch upon the recent decline in Chinese small-cap stocks and its potential connection to Donald Trump’s presidential campaign in the United States. Over the past few weeks, the small-cap index in China has experienced a significant drop, plummeting from nearly 6500 to 4500. Yesterday alone, the fall exceeded 7%. While this could be attributed to various factors, including market dynamics and economic conditions, some speculate that Trump’s observations and rhetoric about imposing a 60% tariff on Chinese goods imports may be influencing this downward trend.
Let’s be clear; this discussion is not meant to be political or serve as a narrative on the situation itself, but rather an analysis of the market’s attempt to price in potential future events. It is important to note that stock prices are forward-looking and tend to anticipate upcoming changes, often disregarding current earnings. Even if a company’s financials, such as earnings and cash per share, appear promising, market prices may still decline due to perceived risks or uncertainties.
Considering this, the market may be attempting to price in the potential impact of Trump assuming the presidential seat and the subsequent implications for Chinese stocks. Trump’s presidential campaign has gained traction over the past few months, leading investors to anticipate the impact his policies could have on the Chinese export market. This anticipation could explain the turbulence witnessed in Chinese small-cap stocks recently.
Now, some may argue that focusing solely on stock prices disregards the fundamentals of these Chinese companies, such as their earnings and financial health, which seem robust. It is true that China’s export companies, like Alibaba, may appear attractive in terms of their earnings and the value of their assets. However, the current decline in prices suggests that the market is pricing in a scenario where Trump’s policies could potentially crush the earnings derived from Chinese exports.
If you have any questions, please write to support@weekendinvesting.com
