The catch-up trade

The NASDAQ 100 index has carried the market for the first half of the year. Over the last few weeks, however, other areas of the markets have been coming back to life. Nimble traders might look at some of those sectors in the weeks ahead.

August into September is a fairly volatile period for markets historically. We could see markets suffer bouts of profit-taking, which could give investors a chance to buy stocks in certain sectors that have lagged the markets but have the potential to outperform in the months to come.

One area that is risky, but may promise higher rewards, could be the China trade. Most readers are aware of the many negative developments that have plagued the Chinese market over the last two years. Political issues between the U.S. and China including trade tariffs, microchip sanctions, national security blacklisting of certain companies, and limitations on U.S. investments in certain targeted areas have soured investor attitudes toward the Chinese stock market.

On the Chinese side, regulatory crackdowns on mega-cap companies by their central government devastated their stock market. The stock prices of many companies that had represented the best that China had to offer were decimated. All of this is well known.

At the same time, thanks to the Peoples’ Republic of China’s zero Covid tolerance policies, the mainland economy was severely damaged and has still not recovered.

Chinese retail investors, who represent 60% of trading volume on China’s stock market, are cautious if not downright bearish on their market. Domestic and foreign Investors have been waiting for months watching for signs that the government will begin to announce plans to jump-start this faltering economy.

Only recently has there been any indication that economic policy is beginning to change.

And while officials promise to change, they are taking their sweet time in providing any concrete stimulus measures that could do the job. Nonetheless, anticipation that change is just around the corner has ignited what I call a catch-up trade in China and its beneficiaries.

Globally, commodities, material stocks, mines and metals, oil stocks, and agricultural equities are all beginning to show some life. Why? On the margin, a growing Chinese economy will create increased demand for all these raw materials. These products have traditionally fueled China’s factories and their exports. In addition, a recovering Chinese economy becomes the locomotive for dozens of emerging and frontier markets throughout the world.

All the above areas have been left in the dust this year as everyone’s focus was squarely on the Magnificent Seven and lately AI stocks. As a contrarian, I am attracted to unloved areas like this. That is not to say that the technology sectors of the market will not participate. They will, just not at the same rate as those in a catch-up trade, in my opinion.

There is also a second player in the metals markets with billions in cash to spend. Saudi Arabia has decided to become a hub for the processing and trade of minerals which are vital for the energy transition. In an ongoing effort to diversify the country’s oil-dependent economy, they plan to develop more than $1 trillion in copper, phosphates, zinc, uranium, and gold.

Progress in this effort thus far has been slow so to jump-start their processing facilities, a new entity controlled by its huge sovereign wealth fund and its national mining company has begun to buy up mineral resources around the world and ship them home for processing.

I believe the prospects are attractive in the second half of the year for further gains in China, emerging markets, mines, metals, materials, energy, and other commodities.

 

Bill Schmick is a founding partner of Onota Partners Inc. in the Berkshires. None of his commentary is or should be considered investment advice.  Email him at bill@-schmicksretiredinvestor.com.

Latest News

Silo Ridge donates $50,000to Amenia Ambulance Corps

Residents of Silo Ridge and Amenia Fire and Ambulance volunteers posed with a big check in front of the volunteer ambulance Sunday morning, Nov. 17.

Photo by Nathan Miller

AMENIA — Jamie Vitiello presented a check for $50,000 to the Amenia Volunteer Ambulance Corps Sunday morning, Nov. 17, during the Amenia Fire Company’s pancake breakfast at the fire house.

Vitiello said he heard about the ambulance corps’ need for a life-saving device called the Lund University Cardiopulmonary Assist System device, or LUCAS device for short. The LUCAS device assists emergency responders in applying chest compressions. The mechanical device can be situated around a person’s chest in the case of cardiac arrest and used to provide compressions that are more consistent and generally safer than a human providing CPR.

Keep ReadingShow less
Millerton: $5 million water quality grant

MILLERTON — In what Mayor Jennifer Najdek has described as “a huge bump for us,” New York State has awarded Millerton an Intermunicipal Water Infrastructure Grant (IMG) to fund various projects which continuously monitor and improve local water quality. The size of the grant is a generous $5,082,099, an amount which cannot be exceeded.

The official acceptance of the grant, which is application-based, came together fairly quickly as officials had only one week to decide. With the knowledge looming that grant requests may be bypassed or allocated to other communities without a decision being reached, Millerton leadership aligned after careful consideration at a special meeting held last week, signing off on Nov. 8. With the grant now secured, Najdek is optimistic Millerton can now move forward on pending wastewater concerns like water treatment and stormwater projects, saying “This project has great potential to happen now.”

Keep ReadingShow less
Aymar-Blair declares victory in County Comptroller race

Dan Aymar-Blair

Photo provided

MILLERTON — Democrat Dan Aymar-Blair defeated Republican A. Gregg Pulver in the race for County Comptroller, according to unofficial results of the Dutchess County Board of Elections after a count of affidavit and absentee ballots.

As of Friday, Nov. 15, Aymar-Blair was ahead of Gregg Pulver by 850 votes. Aymar-Blair declared victory on Friday.

Keep ReadingShow less
Zoning Review Committee gives four year update on Boulevard District

MILLERTON — The Town of North East discussed the next steps for the Zoning Review Committee during its board meeting on Thursday, Nov. 14.

Edith Greenwood, committee chair and vice chair of the North East Zoning Board of Appeals, joined the Town Board meeting to share what the committee has completed in the last four years.

Keep ReadingShow less