Free Trial

There's a new buy signal flashing for these stocks, Dalio effect?

Economy of China growth chart

Key Points

  • Chinese economic indicators are flashing a signal not seen since 2005. Could history repeat itself and bring a triple-digit rally?
  • Ray Dalio has been quietly building positions in the nation, potentially seeing the effects of the credit cycle in its stock market.
  • Stocks like Alibaba and JD.com could be the first to rally, as do analysts and Barron's top picks think.
  • 5 stocks we like better than Simon Property Group

In every market, there are markers and yardsticks - or benchmarks as they like to call them - that attract investment dollars in and out of specific vehicles and asset classes. Focusing on stocks today, you will learn where a few yardsticks are moving and how investors like Ray Dalio have gotten a headstart on what could be the rally of the year.

Starting with the credit cycle, everyone knows - or should know by now - that interest rates and money markets typically drive stocks higher or lower, so repeat this to yourself every night before bed: rates up, stocks down, rates down, stocks up. In the United States, the FED is looking to cut rates in 2024, making a bullish case for the market. However, there are even stronger bullish signals across the world.

You see, the way the Chinese market is behaving today could soon trigger a buying spree like none other. For reasons you will learn in a bit, a buy signal that hasn't flashed since 2005 is now a screaming buy for stocks like Alibaba Group NYSE: BABA and JD.com NASDAQ: JD, and maybe even the reason why Dalio is buying into ETFs like the iShares MSCI China ETF NASDAQ: MCHI.


Mechanics first

So, look, when interest rates move, the first market that will pivot is the bond market, and you can see the direct impact by following instruments like the U.S. ten-year government bond yield. Here's a quick example of how powerful of a driver this benchmark can be:

In the past quarter, Simon Property Group NYSE: SPG was a stock trading cheaply with its 7.5% dividend yield. That's a good yield, but is it better than the next best thing? During that time, the ten-year was offering a yield of roughly 5.0%, making Simon Property an attractive purchase.

By the time markets found this opportunity and began buying into the stock, its price rose from roughly $105.0 a share to $150.2; that's a 43.0% rally! All because the yield offered was attractive enough within a high bond yield environment. Now, where else can you find an attractive setup like this? You'll be shocked.

In China, the CSI 300 stock market index has been so heavily disregarded by investors worldwide that its cheapness has created a similar dynamic to Simon Property. Only this time, you are talking about an ETF carrying dozens of stocks and diversified risk.

What's the yield? Try 8.0%. While you cannot directly trade this index, you can see a similar development in the iShares China ETF, which is paying out a 2.7% dividend yield today, its highest since 2014. However, the CSI yield means nothing without knowing where the bonds are; ten-year Chinese bonds stand at a 2.5% yield today.

Does this sound familiar? With the stock index giving you 8.0% and bond yields giving you 2.5%, Simon Property's spread looks like an appetizer compared to this giant entree of an opportunity.

How much longer?

Taking the spread between these two yields, 8.0% minus 2.5%, you will see a level of 5.5% as a difference between the two. According to Bloomberg Intelligence, this hasn't happened since 2005-2007, when the United States market became shaky during the housing crisis; guess where investors found the next set of attractive stocks?

That's right, investors poured all over the stock in the CSI index, sending that index higher by 156% in the following years. Could history repeat itself? Only if investors accept that China stocks are among the most undervalued names in the market today, but you still need a spark to light the fire.

That spark will likely come from confirmation of a recovering economy and company earnings. In case you missed it, PDD NASDAQ: PDD posted triple-digit jumps in its financials during the past quarter, showing that the Chinese consumer is ready to return after multi-year lockdowns.

Now, the first wave of a more optimistic viewpoint toward the nation's equities will likely hit blue-chip names first. This is why Barron's, in its 2024 stock picks list, added Alibaba among the first in the group leaning toward value and earnings expansion. 

If you've been following MarketBeat for a while, you would have been aware of this coming pivot after hearing about Ray Dalio's initial buying into China. If you are new here, then there is still time to dig into the logic behind this opportunity; it could prove to be the easiest decision for your portfolio in 2024.

Analysts see a price target of $129.2 for Alibaba, which calls for a net 77.0% upside from today's prices, a good way to start loading up the year. For the second most-followed stock, JD.com, a $44.6 price target slaps a potential rally of 67.1% in that name. 

Should you invest $1,000 in Simon Property Group right now?

Before you consider Simon Property Group, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Simon Property Group wasn't on the list.

While Simon Property Group currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

13 Stocks Institutional Investors Won't Stop Buying Cover

Which stocks are major institutional investors including hedge funds and endowments buying in today's market? Click the link below and we'll send you MarketBeat's list of thirteen stocks that institutional investors are buying up as quickly as they can.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
iShares MSCI China ETF (MCHI)N/A$44.97-0.2%3.16%10.76N/AN/A
PDD (PDD)
4.7757 of 5 stars
$157.57+2.6%N/A20.87Buy$182.31
Alibaba Group (BABA)
4.7608 of 5 stars
$81.26+0.6%1.21%18.94Moderate Buy$109.96
JD.com (JD)
4.822 of 5 stars
$30.27-3.0%2.44%13.82Moderate Buy$37.47
Simon Property Group (SPG)
3.6918 of 5 stars
$147.88+2.2%5.27%18.84Hold$141.40
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

Search Headlines: