How You'll Know That Chinese Stocks Are About To Take Off

Investors seem to be throwing in the towel on China very quickly. However, their market has not really fallen back as much as it seems over the past few weeks.

Also, we have to think about what it will mean to President Xi ‘s standing on the global stage if he does not come through with a bigger stimulus bazooka blast at some point over the next six months.

One of the narratives on Wall Street that I think is off base is the belief that China ‘s economy and markets are headed into the toilet, and that this bearish theme is going to accelerate in the weeks and months ahead. I admit that I’m not sure what is going to happen over the next few weeks, but I do believe that things will improve through much of 2025, beginning no later than early in the new year.

No, this does not mean that the efforts by Chinese authorities will fix the country’s long-term structural problems, but I do think their efforts will help improve the situation in China over the intermediate-term.

There is little question that Chinese authorities have not provided the kind of "bazooka blast" of stimulus as quickly as many people thought they would in September, when they first implied that they’d do whatever it takes to stimulate their economy. However, this does not mean that they won’t shoot that bazooka in the future. The Chinese, led by President X, have put a lot of political capital on the line with their announcements in September, so if they don’t follow-through, it’s going to make them look very weak on the global stage (especially with President Trump about to become President once again).

I am not an expert on geopolitical issues, but I don’t see President XI allowing the promises he and his government made back in September to be left flapping in the breeze in 2025.

I also want to put things into perspective when it comes to their stock market. After the massive 30% rally that came in just six days, the CSI 300 index is down "only" 6% from its closing high in early October.

Yes, it’s down more than 10% from its intraday high on October 8th, but the parabolic move that came at the end of that rally lasted for only a few minutes that day, before closing 5% below its intraday highs. In other words, on a closing basis, the CSI 300 has not fallen in a dramatic way and it still stands 25% above its September lows!

As we move forward, I’ll be watching the late-October lows of 3,800 for the CSI 300. If it can break above its October closing high of 4,256 and thus follow up that "higher-low" with a "higher-high," it’s going to be very bullish for China’s stock market on a technical basis. If (I repeat, IF) it is able to break above its 2024 highs at any point in the coming months, it will be extremely bullish for Chinese stocks!

One thing that does concern me, however, is the action in South Korea ‘s KOSPI index. As I mentioned last week, the KOSPI index has been hit hard since the US election after already experiencing a rough four months. It is now down over 16%, and it has broken below its summer lows. It is now very close to testing its trend-line going all the way back to the October 2022 lows. So, a break below that level would be quite bearish on a technical basis.

That said, the KOSPI is getting oversold, so it could bounce soon. However, if it breaks below that line in any meaningful way, either now, or after a short-term bounce, it will not be good at all. Since South Korea is such a big exporter, especially to China, a further decline in the KOSPI would not be a good sign at all for China ‘s economy.

In other words, I do admit that the problems in China could be too difficult for the authorities to control going forward. Thus, I’ll be watching the KOSPI index for clues on this front.

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