Catching the Panda Express from China’s Internet Economy
As the warmth of the spring air takes hold across America, so too are investors warming up to the notion of the stock market building on its post-election gains.
There is even a rising measure of expectation that stock market gains could accelerate as the year progresses, now that earnings for many sectors tied to the economy are expanding at a pace not seen since pre-2007. What is most encouraging is the breadth of the strength of earnings for the multi-national companies that conduct more than 50% of their business overseas.
It is not just the U.S. economy that is rebounding, but developed and emerging market economies are in the early stages of snapping back as well. It is interesting to see how some major trends are unfolding in the current market, like the widespread evolution of a more consumer-driven Chinese economy.
China’s central government is focused on transforming its economy from pure manufacturing and exports to a more balanced economy that reflects finished imports for a more diversified and affluent middle class of consumers that totals hundreds of millions of people. The rise of online retailing, social media, smart phone use, luxury car purchases, travel and leisure and private education is remarkable.
Companies that resemble Alphabet, Facebook, eBay, Amazon.com, Grand Canyon Education and Priceline.com are all breaking out to the upside. They include stocks like Alibaba Group Holdings (BABA), Baidu Inc. ADR (BIDU) and TAL Education (TAL).
These stocks trade well north of $100 per share. It is as if the Chinese cut and pasted the very same business models and repackaged them for their own society. Sound familiar? They’ve been pirating U.S. ingenuity for decades and leveraging the Internet to manufacture big profits at home.
Be as it may, there is good money to be made off of this macro-mega trend. What’s nice about these Chinese Internet stocks is that the rotation away from traditional Chinese investment themes of materials, commodities, consumer staples and manufacturing is still early. While China’s broader economy is growing at a government-stated rate of 6.2-6.5%, the online and e-commerce Chinese economy is growing at a robust double-digit-percentage rate, based on first-quarter earnings releases. While much of Wall Street focuses on the legacy industries that defined China’s industrial era, some observers overlook the rising wave of newfound consumerism that is causing the country’s economy to resemble the United States and developed countries in Europe.
My covered-call advisory service Quick Income Trader is taking full advantage of this hot trend by buying some of the sizzling growth stocks that trade in the $30-$70 range and selling short-term, out-of-the-money call options against these positions. This way, traders can take advantage of various headline-driven price spikes, capture share price volatility and watch their trading accounts bear the fruit of collecting both capital gains and immediate option premium.
It is a thing of beauty when a sector, such as China’s Internet stocks, can be traded in combination with the options market in a way that affords income investors a hot income stream. I invite those who might want to get exposure to this high-speed train of profits to check out Quick Income Trader by clicking here. Take a tour of how a tightly woven covered-call strategy might be the right fit for adding some Chinese spice to your portfolio returns.
In case you missed it, I encourage you to read my e-letter from last week about the strong case for a bullish market created by first-quarter earnings.
