Time to Trade Chinese StocksVIEW IN BROWSER By Jeff Clark, Editor, Market Minute China is waking up. The Shanghai Stock Exchange Composite Index (SSEC) is up nearly 5% over the past two months. Of course, most folks haven’t noticed because most folks abhor the idea of investing in Chinese stocks – with good reasons… Chinese stocks are risky. There are lots of fraudulent companies listed on the Chinese stock exchanges. Even the legitimate companies are prone to posting sketchy financial reports. The United States and Chinese governments are rivals. China’s government is known for manipulating its financial markets. And the list goes on… There are plenty of reasons NOT to buy Chinese stocks as investments. But, every now and then, a low-risk/high-reward setup appears – where it can be quite rewarding to TRADE Chinese stocks. Today is one of those times. Prior to its recent rally, the Shanghai Stock Exchange Composite Index (SSEC) was trading near its lowest relative valuation to the S&P 500 in 20 years. Look at this long-term chart comparing the SSEC to the S&P 500… 
When the chart is rising, SSEC is performing better than the S&P. When the chart is falling, SSEC is performing worse. For the most part, over the past 20 years, your money has been treated better in the U.S. than in China. There are times, however, where the valuation difference is so extreme it has paid well to own Chinese stocks. In late 2008, for example, as the U.S. markets were still dealing with the Great Financial Crisis, SSEC bottomed. It then rallied about 80% over the next three months. In February 2022, this ratio chart hit another extreme low. SSEC rallied 20% in about four weeks, while the S&P 500 dropped 7%.
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In September 2024 – the last time this chart was at such a depressed level – SSEC rallied 25% in two months. Today, the ratio chart is back down near its lowest point ever. Chinese stocks have been uninspiring so far in 2026. The SSEC is down 1% year-to-date. Meanwhile, the S&P 500 is up more than 12%. But, it looks like that trend may be about to change. The ratio chart is starting to turn higher from deeply oversold conditions. This doesn’t guarantee a rally in Chinese stocks, of course. Nothing is ever guaranteed in the financial markets. This historically low valuation does suggest, however, that the risk to owning Chinese stocks right here is limited. And, the potential reward could be substantial – especially if the recent rally in the S&P cools off a bit and money starts to rotate into underperforming markets. Best regards and good trading, 
Jeff Clark
Editor, Market Minute |
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