U.S. President Donald Trump tweets, and all hell breaks loose in the markets.
Over the weekend, with hopes of a final deal with China on trade due by Friday, President Trump stirred the pot.
This time around, he's threatening increased tariffs, believing China has backtracked on certain items in the forthcoming agreement. His threats have already caused the Dow Jones to dip just over 2% from last Friday's close.
Chinese stocks have been hit especially hard. Since Friday's close, the SPDR S&P China ETF is off nearly 6%.
But there's way more to the story than just raising tariffs.
The "Trump economy" is firing on all cylinders, as evidenced by the most recent jobs report.
With that booming economy, the stock market has shaken off a late 2018 sell-off and has eclipsed previous highs.
It's a no-brainer for Trump to push his advantage with China with these current market conditions.
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Sure, the knee-jerk reaction to Trump's weekend tweeting was to sell stocks.
On Monday, the market opened lower, but then recovered nearly all losses.
Tuesday was a different story.
Trump upped the rhetoric. This time market losses accelerated throughout the trading day.
It's all noise.
China needs this deal more than Trump does.
That's all you need to know.
Certainly, there are risks that things escalate before a final deal is consummated, but there is no way we don't get some kind of deal.
Trump is using the currency of the market to reach more favorable terms. He will never push that advantage to the point of not getting a deal.
Thus, any selling from here should be viewed as a buying opportunity.
Looking more closely at the fundamentals, we see that there are Chinese stocks that will soar from here. And any dips we've seen simply mean we can buy in at better prices.
The Money Morning Stock VQScore™ has identified three such stocks that can be bought for the ultimate contrarian profit play.
Here are the three best Chinese stocks to buy on the dip...
Best Chinese Stocks to Buy on the Dip, No. 3
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As markets decline on Trump tweets about tariffs, volatility increases greatly.
Strategists love dividend stocks in such a market. Even better if there is growth included with that dividend.
One such stock is Xinyuan Real Estate Co. Ltd. (NYSE: XIN).
The dividend yield on this China stock is 9%. Any concessions made by China in the final trade negotiation won't hurt this company.
What do imports and exports have to do with residential construction? Not very much. Xinyual develops residential apartment buildings in China and the United States.
When a trade deal does come, volatility should decline.
Before the Trump tweets, China's economy was gaining steam thanks to easy monetary policy.
That should be only temporarily derailed as the long-term economic best interest of both China and the United States is to get a deal done.
When that happens, you could see a 50% spike in XIN or more.
Best Chinese Stocks to Buy on the Dip, No. 2
Shares of Weibo Corp. (NYSE: WB) have declined in the two days post Trump trade tweets. That seems a bit excessive for a company expected to grow profits by 20% from the current year to the next.
The Twitter of China, Weibo is the ultimate social media platform that will perform well when the trade noise subsides.
We are in the midst of a coordinated attempt by global central banks to inflate the largest economies in the world. The trade deal, when it is concluded, will simply be icing on the cake.
Considering there is no inflation to be found anywhere, paying 20 times 2019 estimated earnings for Weibo seems like a no-brainer.
Best Chinese Stocks to Buy on the Dip, No. 1
The ultimate Chinese stock to buy thanks to the Trump-fueled discount in share price has to be Momo Inc. (NASDAQ: MOMO).
The company offers mobile chat and games services in China. The mobile device market is only getting bigger, trade deal or not.
Analysts expect Momo to grow profits by 21% from the current year to the next. There is a 10% discount after Trump's tweets, and Momo only trades for 12 times 2019 estimated earnings.
A little under a year ago, shares of Momo traded for more than $50 per share. Now that the Chinese economy is showing signs of life, Momo is on its way back.
A little negotiating pressure from the United States is not going to stop that momentum. This Chinese stock has the potential to double in value or more.
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