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Trump Policies Cause Chinese Stocks To Out-perform Those of US. (#GotBitcoin?)

#GotBitcoin?
#GotBitcoin?

Shares in China have outperformed their U.S. counterparts since Beijing and Washington agreed to hold fire in their trade battle, reversing a pattern that has held for most of this year.  Trump Policies Cause Chinese Stocks To Out-perform Those of US.

What’s Happening

Calm has returned to China’s stock markets after a dismal and volatile year, amid expectations Beijing will take more potent measures to arrest an economic slowdown.

The benchmark Shanghai Composite Index has edged up 0.2% since the U.S. and China agreed to 90 days of talks after President Trump and Chinese President Xi Jinping met in Buenos Aires on Dec. 1.

By contrast, the S&P 500 index has fallen 5.8% in the same two-week period. Still, Shanghai is down nearly 22% this year, as of Friday’s close, while the S&P 500’s loss is only 2.8%.

While Chinese equities have fallen much further this year, up until now they have also tended to suffer in sessions after U.S. stocks have dropped significantly.

What It Means

A lot divides the world’s two biggest stock markets, including share valuations and diverging monetary and economic policy, analysts say.

“China’s stock markets appear to have regained some composure. They haven’t followed the selloffs on Wall Street this time as they tended to do earlier in the year,” said Zhu Chaoping, a Shanghai-based economist at J.P. Morgan Asset Management.

Rising expectations for further monetary loosening and more government spending to boost the economy are helping support already cheap-looking Chinese stocks, Mr. Zhu said. In contrast, U.S. stocks face pressure due to concerns about slowing corporate earnings growth next year. And while China’s central bank could ease credit conditions further, the Federal Reserve could still raise interest rates next year, Mr. Zhu added.

In an effort to pre-empt a seasonal cash crunch, China’s central bank on Monday resumed pumping money—amounting to 160 billion yuan ($23.17 billion)—into markets after halting the routine liquidity operation for 36 business days.

Some analysts and investors are also increasingly hopeful that external pressure may lead to more economic reform.

Others urge caution. Xiaoqing Xu, managing director of Preston Asset Management, a Shanghai-based hedge fund, said those hopes “make sense to some degree” but she was doubtful that external pressure would be enough to spark meaningful change.

U.S. Stocks Need A Santa Claus Rally To Avoid A Losing Year

A year-end boost will likely be necessary if the S&P 500 is to avoid finishing in the red.

Investors hoping to avoid the first annual decline for major U.S. stock indexes since 2015 are dreaming of a Santa Claus rally.

Since 1969, the S&P 500 has averaged a gain of 1.3% over the seven-day period that encompasses the last five sessions of the year and the first two trading days of the new year, according to Dow Jones Market Data.

Such a year-end boost will likely be necessary if the S&P 500 is to avoid finishing in the red. It is down 2.8% this year through Friday.

But trade tensions with China, slumping commodities prices and concerns about the Federal Reserve’s pace of interest-rate increases have forced investors to reassess the global growth outlook.

The Fed is widely expected Wednesday to raise interest rates for a fourth time this year and likely indicate how much and how often officials expect to increase rates in coming years.

Dovish signals from Fed Chairman Jerome Powell late last month helped reassure investors that the central bank will take a more measured approach to raising rates next year. Economists have scaled back their predictions for 2019, calling for two rate increases next year rather than the three they expected when surveyed last month.

Any change in that sentiment would likely rattle the already volatile stock market.

“If the Fed flips back to being more hawkish, that would be the thing that derails this,” said Jeffrey Hirsch, editor of the Stock Trader’s Almanac. “But if they raise rates one more time like everyone is expecting and deliver more dovish commentary, I think Santa will come flying down the chimney.”

A Santa Claus Rally Typically Works Like This:

The first half of December is usually weaker as tax-loss selling dominates trading, as investors focus on selling stocks that have declined in value so the loss can be used in that tax year to offset gains on other securities. In the second half of the month when retail investors retreat for the holidays, institutional investors scoop up bargains. When they aren’t buying up stocks, that signals something is amiss in the stock market, Mr. Hirsch said.

Santa’s failure to deliver typically doesn’t bode well for stocks heading into the new year. The last six times the rally didn’t materialize were followed by three flat years in 1994, 2004 and 2015, two bear markets in 2000 and 2008 and a downturn that ended in February 2016, according to Stock Trader’s Almanac.

This month has already been particularly rocky, with the S&P 500, Dow Jones Industrial Average and Nasdaq Composite off to their worst starts to a December since 1980.

Still, other portfolio managers are already snatching up stocks ahead of the coming holidays.

Eric Marshall, director of research and portfolio manager at Hodges Capital Management, recently increased his exposure to Cinemark Holdings Inc., the third-largest U.S. cinema chain by locations. It yields a favorable dividend, and the frequency of new releases in 2019 should also bode well for its business, he said. Cinemark shares are up 16% this year.

“Historically, whether you have a recession or not, people still go to the movies,” Mr. Marshall said. “It’s a very affordable form of entertainment.”

Sandy Villere, portfolio manager at Villere Balanced Fund, said his fund has added to its position in Weight Watchers International Inc. on expectations the company will add more subscribers during the New Year’s resolution season. The stock is up about 9% in 2018, but has lost about a third of its value in the fourth quarter.

“Yesterday’s losers could certainly be tomorrow’s winners,” Mr. Villere said.

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