By Gaming and copper stocks listed in the US have outperformed since China unleashed a blitz of stimulus, and one research firm is recommending investors consider buying.
Trivariate Research’s CEO Adam Parker says traders should look to US-listed stocks that have climbed considerably in the last week and that are typically correlated with China-listed shares.
“I think casinos or copper maybe make the most sense with what I know right now,” Parker told CNBC in a Monday interview.
In a recent client note, Trivariate highlighted the performance of companies in those sectors since China started implementing new stimulus on September 24, through Monday’s close.
The firm noted that the material and industrial sectors were the US market’s top performers over the period, highlighting Freeport-McMoRan (+10.6%) and Southern Copper (+9.1%) as examples.
It also highlighted gaming stocks including Las Vegas Sands (+19.5%), Wynn Resorts (+19.5%), and Melco Resorts & Entertainment (+29.8%). Those casino and resort companies have locations in Macau, a special administrative region of China and the only place in the country where gambling is legal.
“Given relatively low earnings expectations and sentiment, this is sensible in our view, and we think investors should be looking to add exposure in these names,” Parker wrote in a Sunday note.
Parker said it makes sense to use the market’s initial reaction for a gauge on how to position going forward, since the market is behaving differently than past periods of China stimulus measures.
“There are so many variables impacting the market during the prior periods that we don’t have enormous confidence to play it the same way this time,” he wrote.
Parker says historically, not all China stimulus measures have impacted US equities, especially when they coincide with other market moving events in the US. On average, though, they haven’t been great for US shares, though that’s likely due to a confluence of other factors happening at the same time, he says.
“We looked at the last 11 times that China stimulated and what it meant for US equities, and it averages kinda garbage,” Parker said in a CNBC interview.
This time around, though, Parker is bullish.
“Some investors have been waiting for a stimulus announcement for several quarters, so the timing this past week was surprising, and we have concluded the intervention is incrementally bullish for US equities,” Parker wrote.
So far, the new policies have helped fuel a broad stock market rally, with mainland China’s benchmark CSI 300 closing 8.5% higher on Monday in its biggest daily gain since 2008, and a surge in Chinese property stocks.
Last week’s surprise blitz of aggressive stimulus measures aims to reinvigorate China’s weak economy, which has been plagued by weak consumer demand and a struggling property sector.
