In This Week's Issue:

• Equities – Deep Dive for Value
  •  Chinese Tech Sector
• Crypto Market Update
  • TIA
  • Looking Around the Rest of the Market

Equities – Deep Dive for Value

Chinese Tech Sector

Tech and AI have been the talk of the town recently with the ‘Mag-7’ becoming household names in the investing world. I have previously noted caution towards the valuations of these companies and the similarities towards the Dotcom bubble. Yet, these stocks remain inflated on the narrative of AI, covered in great depth on all MSM.

Meanwhile, we have seen "China’s economy is collapsing" story in the MSM constantly. They want to build a fearful narrative around how ‘bad’ China is to scare retail away from doing any business there.

Being the skeptic I am, I took a deeper dive.

Yes, China is experiencing a normal business cycle correction—nothing we haven’t seen before. The US had similar corrections in 2000 and 2008, and anyone who had the foresight to invest back then made a killing. It’s easy to sit here today and say, “I would’ve bought real estate after 2008,” but that was a once-in-a-cycle opportunity.

Since the pandemic the S&P (blue line) is up over 100% meanwhile the hated Chinese 300 index is down, yes, I said down 6%. If you’ve been in this market long enough, you know that capital flows from overvalued to undervalued constantly. It’s only a matter of time before we see a ‘catch up’ game begin where the Chinese stocks reduce the disparity between the two indexes.

OR: Since the pandemic, the S&P 500 (blue line) is up over 100%, while the Chinese 300 Index is down 6%. Let that sink in. Markets move in cycles, and capital always flows from overvalued to undervalued assets. It’s only a matter of time before we see Chinese stocks start catching up.

So, if someone wanted to allocate a small portion of their portfolio to this sector, how would they go about it?

While the upside is clear, caution is necessary. Look at what happened when the US decided it “wasn’t happy” with Russia—sanctions locked retail investors out of Russian markets, while BlackRock and their Wall Street pals kept access.  This restricted access to investors like you and me.  This locked up invested capital without the ability to transact or alter positions during this time. Convenient, right?

With current US-China tensions, a similar scenario could unfold. If that happens, capital could get trapped in Chinese stocks. But like all things, these times pass, and the risk simply means adjusting exposure accordingly.

You do want to exercise some caution in doing so. We saw when the US ‘wasn’t happy’ with Russia, they put sanctions on the country so only their pals at Black Rock could do business and restricted US investors like you and I to buy and sell stocks. This locked up invested capital without the ability to transact or alter positions during this time. Convenient for some huh?

With the current economic tensions evident today, this could be a real possibility with Chinese stocks. However, these times always pass and the risk just means we may want to position accordingly and reduce allocations to the overall sector.

If you’ve been interested and skeptical enough to read this far, lets dive into some ways to gain exposure to assets that have unbelievable asymmetry.

One way to gain exposure, would be to buy an ETF that represents the overall stock market like 000300. But that also means exposure to sectors like real estate, which is fundamentally struggling due to population decline—a direct result of China’s one-child policy. I am unsure how long it will take to resolve itself, so that’s a sector I’d rather avoid.

So, what is interesting? Chinese tech stocks.  Searching for deeper value ideas leads us to these Chinese tech stocks that have been beat down more than the rest of the overall market.

Crazy how this works––while US tech stocks are booming to new highs, Chinese tech stocks are so unloved and unwanted. When we compare the valuations of the Mag-7 to a group of large Chinese tech stocks, we have further proof of the underlying value.  The disparity is obvious and if capital rotates, these stocks have serious upside.

If we chart the stocks vs. the NASDAQ they are also beat down.

With news that the Chinese government needs to begin printing money to stimulate their economy, this could be the catalyst we’re waiting for.  It would reveal that the government is being squeezed to stop the bleeding, resulting in a turnaround of their economy.

Crypto Market Update

Deep Dive into Crypto: Bitcoin & Altcoin Rotation

In previous newsletters I have written about how I think the top of Bitcoin is very close to being in for this cycle. With this in mind, I am watching Bitcoin dominance closely, to see if capital rotates into altcoins, which would push them significantly higher.

If we look at the recent move in Bitcoins market cap from $300B to around $2T, we still have a number of high-development coins that are sitting at their lows and have struggled to increase in price or market cap. When the market is ready and the capital starts to flow, the value tied up in bitcoin will distribute throughout the market increasing the value of the smaller coins. (Bear in mind that there are coins like TIA with a market cap of $2B or Monero that has a market cap of $3.55B). It wouldn't take much for the $2T held in Bitcoin to get these coins rocking.

TIA

Previously, I highlighted TIA as an altcoin to watch.  It's now revisited its lows, testing these again as support. The new price around $4.20 has now held for 6 months or so and is yet to break lower. This shows that buyers have been stepping in at this price and will likely do it again. 

This is another case of great asymmetry—all we need is capital rotation.

On lower timeframes, TIA is forming a textbook Wyckoff accumulation structure. We appear to be in the spring phase, with a rejection beginning to occur. I’ll be watching closely to see if the spring holds and confirm a sign of strength over the coming weeks. 

Even though we were up around 100% and have now roundtripped to the bottom, this proves that this game isn’t for the faint hearted. I hold these assets with the understanding that when they move, they likely move 800-1500%. I have the conviction and patience to wait until I see that result–– unless something fundamentally changes in my thesis. Which to date, hasn't happened. 

The Rest of the Market

While timing is impossible to predict, I’m always scanning certain markets for signs of range breakouts and incoming liquidity.

Take a look at Monero vs. XRP before XRP’s 2017 run.

And what a run that was. Not that I believe Monero will necessarily perform as well as XRP did back then, but it shows us a perfect crash, retrace, re-accumulation structure...right before XRP's historic run.

If we look on lower timeframes, this is where I would imagine we are at.  Monero is showing verrrry similar price action.

Same goes for IOTA, once again following a verrryy similar pattern: 

I’ll let you dive into lower timeframes. For me, it looks like the range is coming to an end, we just need the liquidity and capital flows to return.

Patience isn't just a virtue––it's a skill.  It's developed over time by having conviction time and time again that what you own has value that people don’t see...yet.

Until next time, more sitting on hands, heads in the snow, and conviction that capital flows are coming.

Stay Skeptical,

Matt Lieshout

A kiwi guy living in Utah