Top-2 Names I'm Buying as Trump Is Softer on China Than Expected

I continue to like owning and adding FXI and KWEB. There may be better ways to trade Chinese stocks but these are my current preferred ways.

President Trump has so far been “softer” on China (regarding tariffs and TikTok) than I would have expected. Xi could negotiate a deal here, which is more plausible than I thought.

As we seem to be heading on an approach of “keep your enemies close and your enemies less close,” we could see other nations turn to China for trade. Canada and Mexico, for example, are dealing with the “fentanyl tariffs” (which we delayed a month), steel and aluminum (not yet started) and some vague notion of reciprocal and unfair trade-related tariffs (not defined or given a start data). While it is often necessary to “prod” friends, like “reminding” Europe of its need to have their own defense, it could cause countries to look to alternatives.

The stocks are still under-owned by institutional investors, short interest is high (the highest ever for FXI) and for FXI, the shares outstanding remains well below October levels.

The risk-reward remains attractive with both the potential for a squeeze or FOMO (from asset managers missing the rally) [FXI up over 15% year to date]), adding to my rationale.

I like focusing on "National Security = National Production." We’ve tried to get people to think beyond “drill, baby, drill” with “refine, baby, refine” with limited success. So, let’s try a new approach. 

Anything that could be defined as good for “national security” should benefit from this administration. I started the year trying to pound the table on the ability to manufacture chips domestically, and I will continue to pound the table on that front! There is a lot of chatter over the weekend about potential deals that would potentially changed the landscape of domestic chip manufacturing. 

I see a lot of naysayers, but they seem to be focused on the “old economics”? What do I mean by the “old economics”? I mean a world where you could easily sell into the U.S. chips you made elsewhere. A world where you could set up your own plants here and make chips. I think the administration wants chips to be made here, by a domestically-owned and -operated company and will push people (including foreign companies) into deals to make that happen. 

I like anything that broadly fits the "National Security = National Production" theme, but today wanted to focus on chips since they are very topical.

The potential for European defense spending to increase (in direct response to recent comments from the administration) could actually hasten de-globalization and is a risk to bond markets, as the need to issue debt to fund military spending, could put pressure on yields globally, and crowd out treasuries.

So, I remain cautious on yield based products. I think the 10-year should be in the 4.7% to 4.9% range (I’ve lowered that a touch as DOGE seems to be coming up with some savings). I continue to focus my fixed income portfolio to closed-end municipal bond funds and CRE stocks with a nice dividend.

For now, I won’t address the Mar-a-Lago Accord chatter, largely because I think we have addressed many of the components in this and other reports, but it may become important to specifically address some elements (I’m a fan of the wealth fund, depending on how it is used, and not a fan of “forcing” countries to buy treasuries to pay for “shipping protection,” etc.). But that might be a story for another day, if the accord seems to gain more traction away from things like tariffs and truce’s which we’ve covered.

At the time of publication, Tchir was long FXI and KWEB.