A China stock poised for a breakout amid this stimulus rally, according to the charts
The Chinese central bank unrolled the most significant stimulus program since the COVID-19 pandemic and Chinese equities are starting to show signs that the long history of underperformance relative to western equities could possibly be on borrowed time. The name that has already demonstrated leadership that we want to focus on should this move into Chinese names continues is Tencent Holdings (TCEHY) . Before we get further into the company specifics it’s important to reiterate that Chinese equities have under-performed U.S. equities since 2007. The People’s Bank of China (PBOC) unveiled a multiple trillion USD package to boost the sagging economy that has been mired with deflation, a sagging housing market, and a slowing economy. The goal of the program according to Chinese officials is to return the economy to a 5% growth rate. Looking at the weekly chart of the iShares China Large-Cap ETF (FXI) we can see the breakout from the blue dotted trendline on above average volume and a turn higher in the S & P 500/FXI ratio (bottom panel). The price of FXI is moving higher, but does face a challenge of resistance from the 200-week moving average as well as the 50% retracement. If this move is sustainable FIX should be able to continue through that $34-area resistance zone. Turning to the focus company Tencent Holdings (TCHEY) is a multinational technology conglomerate listed on the Hong Kong exchange since 2004. The company is most known for (according to Tencent.com) “some of the world’s most popular video games and other high-quality digital content…”, but also offers “… a range of services such as cloud computing, advertising, FinTech, and other enterprise services to support (our) client’s digital transformation and business growth” The company is also focusing on an AI project known as “LMM’s” or “large medical models’, similar to LLM’s, that is boosting the healthcare industry. TCHEY also broke out on this rotation into Chinese equities above the yellow highlighted resistance zone , as well as the 200-week moving average around the $52-$53 zone that should now act as support. Tencent earnings have been accelerating with the prior 4 quarter-over-quarter growth rates in chronological order of 37%, 42%, 51%, and 55%. Analysts are looking for more conservative percentage growth rates in the 20’s in coming quarters and if this improvement in Chinese equities on the back of central bank stimulus continues we may see TCEHY reach our $75.00 target. I do not yet hold TCEHY in any of our portfolios at Inside Edge, but following a small period of consolidation I will be looking to build a position with stops below the $52 breakout zone. -Todd Gordon, Founder of Inside Edge Capital, LLC DISCLOSURES: (Gordon does not own TCEHY in his wealth management company Inside Edge Capital. Charts shown are MotiveWave.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
